State income tax rate hike proposal in works

A plan to increase state income taxes on upper-income earners is expected to bubble to the surface in the coming week as Oregon lawmakers get their latest dose of dismal news in a new state revenue forecast.

Friday's forecast is expected to show the state's budget shortfall climbing toward $4 billion. It will rev up efforts by Democratic lawmakers to fill some of the hole with new tax revenue to keep schools and prisons open and protect human services programs.

It's considered a near certainty that anti-tax increase groups will refer to the voters any move in the Legislature to raise income taxes.

Other tax hikes, such as the gas tax, could end up in the voters' lap as well in an election which would likely be scheduled in November.

Democratic Gov. Ted Kulongoski, who's been involved in behind-the-scenes talks with lawmakers about raising new revenue, said he's prepared to take a lead role to sell the idea to Oregon voters in a statewide campaign, if necessary.

"We will fight very aggressively to tell the public why this is a good investment for them," Kulongoski said. "We're going to have to look at more revenue to be able to provide education and health care for the people of this state."

The income tax plan that seems to be gaining the most momentum among lawmakers calls for raising the top tax bracket for upper-income earners rather than simply adding an income tax surcharge that would hit all taxpayers. For individuals earning more than $125,000 or joint filers with $250,000, the top bracket would go from the current 9 percent to 11 percent — a move that would raise an estimated $480 million in new revenue.

Lawmakers also are looking to raise corporate taxes by another $350 million.

The idea is that, at a time when falling revenue threatens key state services, taxes should be raised on those with the most ability to pay and who gained the most from the past economic boom.

"Everyone in Oregon will be touched by this economic crisis," House Speaker Dave Hunt said. "For some, it will be a loss of services. For others, because they are still thriving in these tough times, we'll be asking them to pay a little more in taxes to help the most vulnerable Oregonians.

"There is not a 'No-Pain Zone' that gives anyone a free pass through this crisis," Hunt said.

Republican legislators say the majority Democrats would be creating pain for Oregonians by raising taxes in the midst of this deep recession.

"People are facing record unemployment and difficulty in keeping their jobs. It's a very poor time to go to Oregonians and say, 'Pony up more taxes,' " House Republican Leader Bruce Hanna said.

Senate Republican Leader Ted Ferrioli maintains that "runaway" spending by the Legislature, not a revenue shortfall, is to blame for the state's fiscal difficulties. He said Democrats appear intent on raising $500 million to $1 billion in new tax revenue.

"People are just going to look at that and say, 'Are you kidding me?' " Ferrioli said.

Activist groups on both sides of the issue are gearing up first for a legislative debate on the increases, but ultimately for what all sides believe will be a statewide ballot measure campaign.

Russ Walker, Oregon director of the national fiscal conservative group FreedomWorks, said his organization already has laid the groundwork for an effort to round up the 55,000 signatures needed to block a tax passed by the Legislature and place it on the ballot.

Walker thinks the voters are in no mood for tax hikes and will reject the pleas by Kulongoski, Democratic lawmakers, and various advocacy groups for additional revenue to pay for schools and state services.

"I welcome a campaign by them. They will be flushing their money down a toilet, because they are going to lose," he said.

Cathy Kaufmann, co-chair of the Human Services Coalition of Oregon, said advocates for education and social services are prepared to go to voters with a message that programs for children and the needy will face disastrous cuts without more state revenue.

The proposed cuts, Kaufmann said, include elimination of cash assistance to families with two parents at home; slashing state-subsidized day care while parents look for a job or start work; and reduced funding for various child protective services.

"We're in the biggest fiscal crisis the state has ever faced," she said. "We're not just talking about closing the DMV on Fridays; we're talking about cutting lifesaving services."

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