“In February, I’ll be returning to Salem to represent the Central Coast and Coast Range in the Legislative Assembly.
The priority in 2014 will remain job creation and restoration of funding to our public schools and colleges. We now have the largest K-12 budget in Oregon history in dollar terms. However, accounting for inflation, funding still remains below 1997-98 levels. There will also be great interest in policies that help create jobs and drive Oregon unemployment back below the national average where it belongs. I also expect we’ll hear conversations about a new I-5 bridge across the Columbia and a ballot referral on legalized marijuana in Oregon.
My own focus will be a measure I authored expanding tax cuts for Oregon’s smallest small businesses. In Oregon, most large businesses are formed as “C Corporations.” Their profits are taxed starting at 7%. Smaller and family businesses usually file as “S Corporations.” Their profits are treated as personal income with taxes starting at 9%. This is a long way of saying that small businesses are taxed at a higher rate than large businesses, which I think is wrong.
In 2013, a tax break for S Corporations passed with my support during a three-day special session. I was one of the few Democrats who voted “yes” on this proposal. It was a good bill, but I think we need to make some adjustments in the upcoming session to ensure that the new law helps more Oregonians who are working hard to keep their small businesses afloat and looking for opportunities to grow.
The first problem is that currently, in order to receive the new breaks, businesses need to employ at least one year-round, full-time employee. Here at the coast, seasonal businesses in fishing, farming, or tourism don’t always keep employees year round. Working parents and working seniors don’t all work full-time. And many of the people who work full-time do so combining several part-time jobs. As written the law helps none of these people.
I’m trying to change that. Under my plan the required employment threshold will be lowered so a much larger number of small-but-growing enterprises will be included.
The other problem is that the new tax break has no upper limit. The majority of S Corporations profit less than $25,000 and get a tiny tax savings. But there are 250 qualifying firms that profit over $1 million a year. Their tax break exceeds $40,000 per tax-filer. I congratulate those successful firms, but I don’t think they need a break that is more than most coastal workers earn in an entire year. So I want to limit the tax cut to the first $250,000 of profit.
There is also a subtle problem with an unlimited tax break. We know how many firms qualify for the savings right now. But we don’t know how many other large businesses may change their tax status to qualify in the future. And I’m nervous about a policy where we have absolutely no idea of the ultimate cost. Capping the cut at $250,000 will give us a stable revenue stream and reduce the incentive for large firms to “play the system” for a better rate.
There is one other major issue that I’m passionate about and will continue to focus on in 2014. I’ve written before about the huge amount of tax cheating by people who fail to report income, under-report income, or submit a return then simply don’t send a check. Tax fraud steals over $1.3 billion a year that—if collected—could be used to improve education, support seniors, or reduce taxes for law-abiding citizens.
As a member of the committee that manages the Department of Revenue (DOR) budget, I persuaded the director to hire 30 new tax agents at a cost of about $10 million annually. Those agents are expected to collect about $30 million this year, a 10:1 return on investment for the state. I have also required that DOR report annually on the uncollected amount owed to the state, together with a plan to improve collections. When tax cheats pay their fair share, everyone can pay less.
The 2014 session will be fast-paced and over quickly – we’re scheduled to convene for only 35 days, beginning on February 3rd. I’ll be working hard to bring tax relief to more and smaller businesses. And I’ll be continuing looking for ways to foster more opportunity, security, and a sustainable quality of life on the Central Coast and West Valley.