Democrats in legislature bet against history on tax hikes

SALEM — Democrats have rolled the dice in a big way by approving more than $1 billion in tax increases in the waning weeks of the legislative session, gambling that Oregon has undergone a profound political change since the days of property tax limits and income tax rejections.

The new taxes — on upper earners, corporations, hospitals and gasoline — help balance a shaky budget and offer an exit strategy that sends lawmakers home by July. But it could be a short vacation.

Anti-tax groups already are mobilizing to gather signatures to refer at least two of the tax increases to voters.

Should voters reject the new taxes — and they have an almost flawless track record — the painfully crafted 2009-11 budget falls apart, throwing state finances into chaos.

Republican lawmakers and other critics of the tax hikes call them “job killers” that beg for defeat at the polls. But Democrats, emboldened by their growing majority, have adopted a “bring it on” stance, betting that voters will agree with their philosophy of taxing corporations and wealthier folks.

“It’s a different state and a different country right now,” says Rep. Peter Buckley, D-Ashland, co-chairman of the Legislature’s main budget-writing committee. Democrats not only control the White House, Congress and the Oregon Legislature, they also dominate the state’s voter registration rolls.

“We think voters will support progressive taxation,” Buckley says.

If Buckley and his Democratic colleagues are right, Oregon’s public schools, prisons and social safety net may weather the current economic storm — battered, sure, but largely intact. If not, however, the state faces the prospect of thousands more teacher layoffs, deep cuts in aid to the poor, elderly and disabled, and the early release of hundreds of felons.

The last time Oregon lawmakers took this route, in 2002, they careened off a fiscal cliff. They passed a temporary income tax increase only to see it referred to voters and killed. They tried again, this time referring a similar tax increase to the ballot themselves. Voters gave it a thumbs down.

That led to five brutal special sessions that cut $2 billion from state budgets. The Oregon Health Plan was decimated. School districts ended classes early. Portland teachers worked 10 days for free.

Russ Walker, Oregon director of FreedomWorks, was a driving force behind those votes, and he’s ready for a repeat. The choice targets, he says, are the income tax increase on upper wage earners and the higher corporate taxes.

“We’re certain there will be a referral on both,” Walker says. He says he fully expects the Legislature and the governor to “play games” by waiting as long as possible to sign the bills into law. But even with a short time window, Walker says, he’s confident he can get the 54,000 signatures needed to put the tax increases on the ballot next January.

Once that happens, it will be message against message, with the state budget hanging in the balance.

Democrats have adopted what some are calling a populist appeal that goes like this: Some people and businesses are doing quite well despite the recession, and it’s high time they pay their fair share of taxes.

The tax increases target individuals with taxable income above $125,000, households above $250,000 and corporations that make similar profits. The corporate increase raises the $10 minimum tax — unchanged since 1931 — to a sliding scale that ranges between $150 and $100,000 depending on annual sales.

Those are considered easy targets because they hit only a small fraction of Oregon taxpayers. The corporate tax also plays to an undercurrent of anger against big corporations.

House Speaker Dave Hunt, D-Gladstone, says that when he attends town hall meetings, he asks for a show of hands of people who would pay the higher taxes. So far, he says, only one couple have done so.

Asked to describe his Plan B if the taxes are rejected on the ballot, Hunt shakes his head. “The only other option at that point is cuts,” he says. How big? He refers to the 30 percent cut lists that state agencies presented when they were asked to prepare worst-case scenarios this year.

Buckley says Oregonians understand the need to keep schools open and maintain a safety net. They also think that some people can afford to pay higher taxes.

“My hope is people have a greater sense that we’re all in this together,” he says.

Walker says that won’t sell. Too many people are worried about paying their mortgages and hanging onto their jobs, he says. “This is not going to be a difficult story to tell.”

The higher tax brackets on businesses will cause them to retrench and hire fewer workers, he says, and tax increases on upper income earners also will affect a large number of small-business owners.

“If you combine the two, it’s like a perfect storm on the economy.”

The mere threat of signature-gathering campaigns already is influencing politics in Salem, where lawmakers are pushing toward adjournment. Last week brought a standoff between Kulongoski and Hunt over use of state reserve funds for public schools.

Hunt and other top Democrats led the drive to shift money from two state reserve accounts into the general fund, in part to boost spending on K-12 education. Kulongoski countered that he would veto the move because he wants to hoard state dollars for next year when the state budget could be shattered.

The governor “is looking beyond this session,” said Kulongoski’s spokeswoman, Anna Richter Taylor. “He thinks the threat of this referendum is very real.”