The state House of Representatives recently spent hours on House Bill 3427, a piece of legislation that would tax businesses on gross income over $1 million and spend it on schools.

They eventually approved it May 1 on a 37-21. It is scheduled for a hearing in the Senate this week.

The plan, crafted by Democrats in consultation with business groups and the education establishment, would impose more than $1 billion a year of taxes on an estimated 40,000 businesses’ gross receipts over $1 million. The money would go mainly to enhance school offerings with 20 percent set aside for programs serving toddlers and preschoolers.

Under the bill, businesses with at least $1 million in sales inside Oregon would pay a tax of .57 percent on their sales. However, the first $1 million in sales would be exempt from the tax and businesses could subtract 35 percent of either their labor or capital costs from their total sales.

If approved, the tax is anticipated to generate $1.6 billion in 2019-21 biennium, the state website reads.

Sales of groceries, gasoline, hospitals and long-term care would be exempt from the tax.

On the floor

During more than three hours of floor debate, Democrats repeatedly described the business tax as a historic response to disinvestment in public education dating back to Measure 5’s property tax limitations, which voters approved in 1990.

Rep. David Brock Smith, R-Port Orford, took a break more than five hours into the debate to post an email noting that he feels the proposed legislation is rushed.

“As a longtime school board member of one of the most economically depressed districts in the nation, and now having ten rural school districts within my district, I have long supported funding education to students in the classroom,” he said. “Unfortunately, I cannot support doing so by circumventing the voters of this state through HB 3427.”

He said the legislation is a hidden sales tax that has been rejected by voters repeatedly over the years, would negatively impact rural Oregonians and their businesses and is regressive, meaning it would take a larger chunk out of the poorest families.

The plan would also cut personal income tax rates by .25 percentage points for the lowest three of Oregon’s four tax brackets. Democrats included the tax cut to offset some of the impact to consumers from the new business tax, since economists expect companies would pass along some of the cost.

“The scheme to lower the personal income tax is a fraction over what the pyramid increases will be on goods and services for our residents and their communities,” Smith said. “And there has been nothing done to stop PERS (government employee pension plans) from taking all of these new tax dollars, with none going to students in the classrooms.”

Gov. Kate Brown outlined a plan to protect the new education funding from rising pension contribution rates that districts must pay. That plan would draw money from an anticipated bump in estate and capital gains taxes and from the state’s workers’ compensation program. She also wants public employees to contribute to their own pensions.

Legislative leaders are considering their own pension changes. House Speaker Tina Kotek has also said she wants any fixes to help all governments, not just schools, which would mean less protection for the new schools money.

Republicans admitted much needs to be done to bolster education statewide.

Rep. Daniel Bonham, R-The Dalles, described the education portion of the bill as “an investment that will yield returns in the future.”

The bill w ould set aside about half the money for grants to local districts. The remainder would be split among programs for toddlers and preschoolers, full funding for a 2016 voter-approved measure to expand career-technical offerings and anti-dropout programs and initiatives to improve schools’ performances.

Schools would start to see funds in the 2020-21 fiscal year.

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