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Unemployment compensation to be taxed in Oregon. Federally allowed rapid depreciation for new business equipment to be disallowed.

Subject: ED WALSH: Oregon Senate passes bill disconnecting state income taxes from federal tax breaks

Oregon Senate passes bill disconnecting state income taxes from federal tax breaks

Ed Walsh, The Oregonian February 13, 2009

SALEM -- Acting with unusual speed, the Oregon Senate passed a measure Thursday that will prevent certain federal tax breaks contained in President Barack Obama's economic stimulus package from being extended to state taxes in Oregon.

The measure, House Bill 2157, was rammed through the Senate by the majority Democrats over the objections of Republicans, who labeled it a "$96 million tax increase."

Democrats argued that the step was necessary to allow more time for state lawmakers to sort out how to close growing budget gaps in the current budget year and the 2009-11 biennium.

The federal tax breaks at issue would go mostly to businesses by allowing them to accelerate write-offs of the cost of new equipment, but they also would exclude the first $2,400 in unemployment compensation from federal taxes.

Normally, such changes in federal tax law are automatically extended to state taxes. The bill passed by the Senate "disconnected" Oregon taxes from the federal tax code, meaning that the federal tax breaks in the stimulus package will not automatically apply to Oregon income taxes.

Rep. Ginny Burdick, D-Portland, said the Legislature will enact legislation later to "reconnect" federal and state taxes that could restore some or all of the breaks to Oregon taxes. In the meantime, she said, it will be up to lawmakers in Salem, not members of Congress, to decide whether the state can afford to give up the revenue that would be lost by extending the tax breaks.

The Senate was in something of a race with Congress to pass the bill before the stimulus package reaches Obama's desk for his signature. Once the federal tax breaks are enacted, the disconnect measure could be construed as a tax increase, requiring a three-fifths vote by the Senate.

Republicans argued that it was still a tax increase but lost an attempt to require a three-fifths vote on a straight party-line vote.

"It quacks like a duck; it is a tax increase," said Senate Minority Leader Ted Ferrioli, R-John Day.

"It's a big shell game," said Sen. Jason Atkinson, R-Central Point. "What we're telling business today is that you don't matter."

The Senate passed the bill 17-13 with all Republicans and Sen. Rick Metsger, D-Welches, opposing it.

A spokeswoman for Gov. Ted Kulongoski said he hopes to sign the bill today. Congress is poised to enact a compromise $789 billion stimulus package, but Obama is not expected to sign it until early next week.

Michael Gay Communications Director Senate Republican Office P) 503.986.1955 F) 503.986.1958 C) 503.781.8559
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