Analysts outline tax hike impacts.

Byline: DAVID STEVES The Register-Guard

SALEM - Middle-income Oregonians would end up paying an extra $183 in income taxes under Gov. John Kitzhaber's proposed rate increase, according to an analysis released Tuesday.

The Legislative Revenue Office's study of how Kitzhaber's proposed tax increase would affect people in different income levels showed annual tax increases ranging from an average $10.50 for taxpayers with income below $10,000 to an average $3,235 for those with income of $200,000 or more. For the group of taxpayers in the middle of the pack - those with income between $30,000 and $40,000 - the tax hit would increase by $183.

The analysis assumes that rates would increase from 5, 7 and 9 percent to 5.4, 7.6 and 9.8 percent from 2002 to 2004. Kitzhaber hasn't publicly said how much he wants rates to increase, but he has suggested that set of increases as a "hypothetical working example," spokesman Bob Applegate said.

The suggested increases would generate $409 million a year.

For the 2001-03 budget cycle, in which the state faces an $880 million shortfall, the overall increase would amount to $583 million. When combined with other proposals, such as a cigarette tax increase, a temporary boost in corporate taxes, and the use of tobacco settlement money, the rate increases would be enough to erase the budget gap without forcing additional cuts in education, human services or public safety, Applegate said.

Even before they've analyzed how the tax increase would hit their constituents, some of the Legislature's majority Republicans are talking about an alternative solution that avoids any tax increase.

Senate Majority Leader Dave Nelson, R-Pendleton, said his caucus is trying to craft a proposal that instead relies on $100 million in as-yet-unspecified spending cuts and the use of one-time revenue from various sources to close the gap without increased income taxes or tobacco taxes.

Nelson said he's calling the alternative approach a "bridge over troubled waters" caused by the economic recession. He acknowledged that some, most notably the governor, are sure to continue to oppose what they call the "borrow-and-spend" tactics to avoid the politically sensitive question of raising taxes.

"Is it better to tax or is it better to build this bridge?" Nelson asked. "My answer is to build the bridge."

Applegate said despite such efforts to find a no-new-taxes alternative to Kitzhaber's package, he was confident the governor's approach would remain viable as lawmakers prepare for a special session expected for some time later this month.

"It's the only thing that raises a significant amount of money without paying a high price for it," Applegate said, referring to the cost of interest to repay borrowed money or of selling future tobacco-settlement income to have a prorated amount up front from investors.

"There's no free money. It all comes with a cost," he said.

Democratic Rep. Phil Barnhart, who was assigned to represent south-central Oregon under redistricting, said his recent trip to the small farm town of Paisley had convinced him that Oregonians would support a tax increase if they knew it would go to schools.

Barnhart, who lives in south Eugene and is running for re-election there, spent Sunday and Monday in Paisley to meet with constituents after he'd received about 180 letters from people asking for help to prevent budget cuts from forcing closure of the town's only school.

After two town meetings and a tour of the school, he said many residents have concluded that a tax increase may be necessary.

"They're like people everywhere. Once you understand that the schools can't withstand any more cuts, and you believe you can't avoid more cuts unless you get a tax increase, then a tax increase becomes more palatable," Barnhart said. "That's the sense I got from the people in Paisley."

Anti-tax activist Bill Sizemore said polling he's done around ballot measures has convinced him that voters' willingness to tax themselves, even for causes such as education, has its limits.

In fact, once they understand their taxes would increase by more than $45, support drops below 50 percent.

"As soon as you get up in the $100-a-year range, the support drops into the 30 to 35 percent range, meaning 2-to-1, people will not support it," said Sizemore, the executive director of Oregon Taxpayers United and a campaigner for many tax- and spending-limiting initiatives over the past decade.

According to the Legislative Revenue Office analysis of Kitzhaber's proposal, about 65 percent of taxpayers would see their income taxes rise by more than $100.

Even some who support the effort to raise revenue to prevent cuts to education and human services are concerned with Kitzhaber's proposal.

Chuck Sheketoff, executive director of the Oregon Center for Public Policy, said the problem is that taxes would be increased across-the-board for rich and poor alike.

His Silverton-based organization, which assesses how government policies impact poor people, recently completed its own analysis of the governor's tax proposal. It concluded that overall, taxes would represent about the same proportion of income from people in the middle 20 percent as at the top of the income ladder - something that should be addressed by raising the rate only for the top group of tax filers, Sheketoff said.

"For a wealthy person, a smaller share of their income is going to their daily needs. For a lower income person, it cuts into their spending for their basic needs," he said.

Applegate said that Kitzhaber was not yet committed to any specific tax scheme and was willing to consider such alternatives.