State House scales back Democratic tax plan

SALEM — The Oregon House significantly scaled back a Democratic plan to raise taxes on corporations and wealthy individuals Wednesday after it became clear that the proposal didn't have enough support to pass.

Lawmakers stripped the bill of its controversial provisions and unanimously approved what was left: an effort to tax corporate revenue held in off-shore accounts.

Democrats had hoped to phase out income tax deductions for the highest-earning taxpayers and increase the corporate minimum tax, but they couldn't get the two GOP votes they'd need to raise revenue.

In a separate, nearly party-line vote, lawmakers approved a Democrat-backed bill that would cut pension benefits for retired government workers over the objection of Republicans who said it doesn't go far enough to address the rising costs of public-employee pensions.

It goes to Democratic Gov. John Kitzhaber, who has said he'll sign it but has also called for much more aggressive pension cuts.

The Democrats' victory on pensions was largely overshadowed by the surprise struggles with their tax-increase plan.

It came just two days after House Speaker Tina Kotek, D-Portland, confidently declared that she had enough votes to pass it, including at least two Republican votes that would be needed to reach the supermajority required to raise taxes.

The scaled-back bill is estimated to raise about $18 million over the next two years, less than 7 percent of the $275 million in new revenue that House Democrats said they'll need to balance the state budget and increase funding for schools.

The new revenue will be dedicated to mental health.

Kotek said one Republican lawmaker, whom she declined to name, backed out of supporting the bill after originally committing.

She said she was undeterred and would continue fighting for tax increases on corporations and wealthy taxpayers.

"I'm disappointed in my Republican colleagues," Kotek said. "I had hoped that some people would choose to cut tax breaks so we could fund our schools."

Buoyed by their success blocking the tax increases, Republican leaders said they'd keep pushing for stronger cuts to benefits from the Public Employees Retirement System. They said they won't discuss tax increases until they're satisfied that pension costs have been contained.

"By taking this tax package off the table, now we can get to a more serious discussion about PERS," said Rep. Vicki Berger, R-Salem.

The sanitized tax bill now goes to the Senate, where lawmakers are likely to work up their own plan. Democrats have slim control of the Senate but will need at least two Republican votes to raise taxes.

GOP senators have said they're open to tax increases if they come with steeper pension cuts.

The Democratic pension measure approved Wednesday would save state and local governments about $460 million over the next two years, mostly by reducing cost-of-living increases for retirees earning more than $20,000 a year. Kitzhaber proposed $860 million in cuts, and Republicans are pushing for more than $1 billion.

In addition to their proposed cuts, Democrats want the pension system to delay $350 million worth of taxpayer contributions into future budget cycles.

Severe investment losses during the Great Recession erased 27 percent of the pension fund in 2008, requiring steep increases in taxpayer contributions to make up the difference and limiting money available for state and local government services.

The pension system's financial situation leaves the state with no good options, said Rep. Chris Garrett, D-Lake Oswego. The Legislature will either have to take from seniors' retirement checks or further starve schools already reeling from years of budget cuts, he said.

"I'm convinced that no matter how I vote on this bill I am doing wrong. Innocent people will be casualties of a yes vote and a no vote," said Garrett, who voted yes because of the need for public services.

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