Senate Committee Hears Proposal for Tax Reform

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Byline: David Steves The Register-Guard

SALEM - The 2003 Legislature took up one of the most ambitious tax bills of the session Monday when a Senate panel heard testimony on a proposal to impose a new business tax while cutting taxes on individuals and corporations.

The proposal, which carries the cachet of being the Senate budget chief's pet project, would generate more than $1 billion once it's in full gear.

House Bill 2747 and its amendments probably will get at least a second hearing so more supporters and detractors can have their say, said Senate Revenue Committee Chairman Ryan Deckert, D-Beaverton.

But with sharp resistance to any tax increases in the House, Deckert said it was far from certain that the bill would move beyond the discussion phase.

Still, the proposal's sponsor, Sen. Kurt Schrader, and backers from organized labor, education and other groups were happy to just have a chance to talk about it in an official legislative forum.

"Hopefully it's the beginning of a discussion that will get us to rethink the way we do things," said Schrader, one of the co-chairmen of the Joint Ways & Means Committee.

Schrader's proposal would tax business activities, including employee compensation, interest, dividends and profits, along with rent payments and depreciation of business assets. The formula calls for adding up those expenditures, then subtracting any capital expenditures for a net total that would be taxed at a 2.75 percent rate.

The tax would raise $3.5 billion in 2005-07. But that would be offset by cuts to the capital-gains and personal income tax rates and phasing out the corporate income tax by 2006.

The net revenue would add up to $381 million in 2003-05 in a partial phase-in. By 2005-07, the package would produce a $1.44 billion net increase in state revenue.

The proposal also calls for creating a new fund dedicated to education.

It would exempt agriculture and enterprises with business activity under $100,000.

A computer model by the nonpartisan Legislative Revenue Office concluded that much of the tax would be passed along to consumers and workers through higher taxes and lower wages.

The office's industry-by-industry analysis suggested that all business sectors would experience an increase in positive net business income, ranging from a 1.2 percent increase in mining to an 18.6 percent jump for manufacturing.

But the prospect of a new tax on business, even if offset by a drop in other taxes, drew opposition from the state's largest business lobby, Associated Oregon Industries.

Joe Schweinhart, one of the association's lobbyists, called Schrader's tax proposal a "hidden sales tax" that would "have damaging impacts on Oregon's economy. …