By Chuck Jones and Julie Parrish
Gov. Kate Brown has a decision to make Friday – one which will personally impact our businesses and the livelihood of hundreds of thousands of small business owners and their employees across Oregon.
Last year when Congress passed the tax reform bill, a provision of the new law allows small businesses to deduct 20 percent of their business income from their federal tax return. It was designed to help increase cash flow for business owners of sole proprietorships and partnerships.
As a Certified Financial Planner and a small business owner, we know of many entrepreneurs who have had difficulty accessing capital to grow their business. Many times, large banks deny lending to start-up companies or mom-and-pop operations without a business track record. These small businesses are stuck using credit cards with high-interest rates or taking a second mortgage on their home.
The change in the federal tax law gives over 400,000 Oregon small businesses the opportunity to keep more of their own hard-earned income so they can grow their business, hire their neighbors, or pay down debt. For many sole proprietors, over 200,000 Oregonians by the Legislative Revenue office’s count, their business income is their take-home pay. It’s how they put food on the table, pay for health care, and keep a roof over their heads.
So, it was disturbing to see in the most recent legislative session that a majority of lawmakers decided to disconnect Oregon from this provision of the federal tax code. This poorly-reasoned choice will cost small businesses $258 million in increased state taxes as a result, according to state estimates. Moreover, Senate Bill 1528 has a provision creating a new tax credit giveaway to offset the taxable income of the wealthiest Oregonians, which will be paid for at the expense of these small business owners that are losing their state tax deduction.
We think we speak for many business owners when we call on Gov. Brown to veto Senate Bill 1528.
If she signs the bill, it will create a bureaucratic tax nightmare for small businesses who will have to keep two different sets of books to maintain tax compliance for the IRS and the state’s Department of Revenue. Large, publicly-traded, and out of state corporations who already pay less as an effective tax rate than our local and family-owned business will have no such requirement, creating an unfair disadvantage based solely on a business’ tax filing status.
During the Great Recession, President Obama passed a stimulus package designed to help grow the economy. At the time, Oregon was facing a $3.5 billion budget deficit. There was a proposal to disconnect from Obama’s tax plan and lawmakers in 2011 rejected that idea, understanding that giving the state’s job creators tax certainty would help Oregon’s economy recover from devastating losses.
Oregon now has record tax revenues. In the last legislative session, lawmakers approved nearly $100 million in new spending and increased our bonded debt. In 2017, public employees got a hefty pay increase to offset the higher cost of living, particularly in the Portland-metro area. Conversely, small businesses have been saddled with an ever-increasing minimum wage cost, a requirement to offer paid sick leave and participate in a state-managed retirement plan, new business license fees, taxes on health insurance premiums, and in July, a new payroll tax. Average business incomes in Oregon are not keeping pace with inflation or legislatively-increased costs. In 2018, it’s anticipated that over 60,000 sole proprietorship businesses are expected to take a business loss, according to the Legislative Revenue office.
Something has to change. The Legislature cannot keep passing laws that force small business to bear more of a cost burden for programs initiated by lawmakers, while at the same time withholding needed tax relief that will provide small businesses with the additional capital to meet those expenses.
Unlike many states, Oregon’s general fund budget isn’t anchored by big C-suite businesses. Because small businesses file their business income on their personal income tax forms, people miss the fact that the state’s budget is anchored by thousands of entrepreneurial Oregonians who are willing to take the risk to start a business and hire their neighbors. They aren’t multimillion-dollar CEOs; they are the local shop owners who volunteer in our communities and donate to the high school football team. And they deserve a break.
Gov. Brown has fashioned herself to be a supporter of small business, and we genuinely believe she sees herself that way. But now she needs to mean what she says. Vetoing SB 1528 would be a step in the right direction.
Chuck Jones has been a financial planner for over 35 years in Tigard. He is the author of the Portland Small Business Bill of Rights and is a member of Oregon National Federation of Independent Business and the Oregon Small Business Association. Julie Parrish is a small business owner and Republican representative from West Linn.
Note: Governor Kate Brown has announced she will sign the Tax Bill.
Disclaimer: The opinions stated by the authors may not be those of the Clackamas County Republican Party.