Kate Brown didn’t get to where she is without learning how to play the game of politics. On April 7, she demonstrated just how good at it she is.
Oregon’s governor had been mulling whether to sign or veto the tax bill her fellow Democrats passed during the short 2018 legislative session, saving the state budget more than $200 million by disconnecting the state income tax from a portion of the federal tax reform measure passed by the Republican Congress. Brown was under pressure from Democrats to sign it, and from the business community and Republicans to veto it.
The federal tax changes give a break to “pass-through” businesses such as S-corps and limited liability companies that pay their taxes through the individual income tax code. Because Oregon automatically mirrors changes in the federal tax code, those businesses would be able to deduct 20 percent of their gross income under the federal tax reform bill and on their state returns — in effect, getting the same tax break twice. Without the bill disconnecting the state from that portion of the federal code, the change would cost Oregon $200 million it would otherwise collect.
It’s important to note that no one’s taxes will increase because of the bill Brown signed, and those businesses will still get a break on their federal taxes — but not on their state returns.
Brown waited until the last possible day to announce her decision, which one Republican lawmaker noted left opponents with too little time to mount a referendum petition to overturn the bill.
At the same time, Brown announced she plans to call a special session of the Legislature in June to extend a separate tax break to a subset of pass-through businesses that currently are not eligible.
The Legislature in 2013 passed a state tax break for pass-through businesses that allows most of them earning up to $250,000 to pay a low 7 percent tax rate — but only if they had at least 1 employee other than the owner, so sole proprietors are not eligible. Brown proposes to extend the tax break to include those businesses, which she said is a matter of fairness. Extending the state tax break to sole proprietorships could cost $30 million, but disconnecting from the federal code still preserves the bulk of the $200 million the state would otherwise lose.
Brown’s gambit is not without risk: She — and Senate President Peter Courtney — want a one-day session, which means she needs Republican votes to suspend the usual rules. But for now, Brown holds the cards.
This is an election year, and Republicans are already hammering her for not vetoing the tax bill. But if they block the one-day session, she can accuse them of refusing to cut taxes for small businesses — something they said they wanted.
Republicans are already accusing Brown of playing politics in an election year, and of course she is. This time, she’s outplayed them.