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Newspaper Article

    Battle lines are being drawn over taxes

    BY Peter Wong
    05/22/2009

    Even before a single vote is taken, the political battle lines are being drawn over higher taxes — particularly on higher-income households and corporations — to balance Oregon's sagging state budget.

    Depending on legislative action, those battle lines could extend to Oregon's voters, if opponents have their way.

    The Legislature also is considering increases in the so-called "sin" taxes — mostly on beer and tobacco — and taxes and fees for specific programs, such as highway and bridge construction and health care for uninsured children and adults. Fuel taxes and vehicle fees are earmarked by the Oregon Constitution for road work, and provider taxes on hospitals and health insurers are meant to recoup federal Medicaid money.

    The main debate likely went into a higher gear following Friday's revenue forecast, which lawmakers use to base the next two-year spending plan for aid to schools, human services, public safety and other programs.

    Even with use of federal economic-recovery funds and state reserves, there is a gap that must be filled. Lawmakers are saying that most of it, $1.5 billion to $2 billion, will be in cuts. The rest, about $500 million to $1 billion, will be in new revenue — or more cuts.

    No matter what the Legislature does, they will risk having it referred to voters by someone, said Bill Lunch, political-science chairman at Oregon State University and an observer of Northwest politics.

    Then and now

    Back in 1982, a Democratic Legislature passed and a Republican governor endorsed an 8-percent surcharge on personal income taxes to balance the state budget in the middle of a severe downturn. Anti-tax groups, then focused on limiting local property taxes, did not petition to refer that increase to voters. The increase was extended in 1983, but expired in 1985. But the political climate is different now

    "The difference between then and now is that you have institutionalized forces that are ideologically opposed to any tax increase," Lunch said.

    Voters rejected income-tax increases that lawmakers referred in 2003, and that lawmakers approved outright in mid-2003 but opponents petitioned to qualify for the ballot in 2004. The leader of that effort was Russ Walker of Keizer, regional director of the national group FreedomWorks, who said his group would zero in on any legislative attempt to increase personal or corporate income taxes.

    "We will let other groups take the lead on some of the other proposals, such as beer and tobacco, if they come up," Walker said.

    Unlike the 2003 and 2004 proposals, however, majority Democrats appear to be aiming at raising personal income taxes on households with incomes greater than $125,000 for a single return or $250,000 for a joint return. Several proposals are pending in the House Revenue Committee, including a new tax bracket for such households — the top rate now is 9 percent — an alternative minimum tax, or a limit on the deductions they take to shield income from taxation.

    "The Legislature can design any of these proposals so that they do not hit many middle-income Oregonians," said Chuck Sheketoff, executive director of the Oregon Center for Public Policy, a think tank based in Silverton. "They can do things that actually raise taxes on the wealthy, lower taxes on a majority of Oregonians — and still come out way ahead."

    Arthur Towers, political director of Local 503 of Service Employees International Union, said voters turned back proposals by anti-tax groups in two election cycles in 2006 and 2008. He said it was too early for a coalition of labor unions and education and human-services groups to talk about campaign plans should revenue-raising measures end up on a statewide ballot.

    "But the sacrifice needs to be shared among those who are still getting ahead in the economy," said Towers, whose union represents more than 40 percent of state workers. "People earning more than $250,000 and big corporations need to step up."

    Other proposals

    Lawmakers failed to agree two years ago on raising the corporate minimum tax, which was set at $10 in 1931. Gov. Ted Kulongoski has a proposal pending in the House Revenue Committee, which also has an alternative based on a flat percentage.

    OSU's Lunch said given the low level of the current tax, a higher corporate minimum is unlikely to qualify for a referral to voters. He said there also may be popular support for higher beer and tobacco taxes, although industry groups may fight them.

    "The level of support will deteriorate under the pressure of advertising by opponents," he said. "But if you start at a high enough figure, it still passes."

    Senate President Peter Courtney, D-Salem, is one of two legislators remaining from the 1982 session; Sen. Rod Monroe, D-Portland, returned in 2007 after an absence of 18 years. Courtney is more pessimistic than House Democrats about how much in taxes lawmakers will raise this session.

    "It's really gut-wrenching, because you have to go to corporate and personal income taxes," he said. "If you talk about sin taxes, the truth of the matter is that the amounts of money raised by beer, wine and cigarette taxes are not that significant."

    Unlike 1981 and 1982, Democrats might win no Republican support for most tax bills this year.

    "Core services and functions of government can be preserved without raising taxes," said Sen. Frank Morse of Albany, the top Republican on the Senate Finance and Revenue Committee, who supports changes in Oregon's tax system but not budget-balancing increases.

    Also on the table is an actual increase in the current corporate income tax rate of 6.6 percent, which applies only to companies that earn income.

    The Oregon Business Association has endorsed a temporary rate increase, along with a higher filing fee for corporations. But other major business groups such as Associated Oregon Industries and the Oregon Business Council have not endorsed them — and FreedomWorks' Walker said those groups, particularly OBA, do not truly represent business interests.

    by Peter Wong on 5/16/09.