Lawmakers respond to tax talk with caution.

Byline: David Steves The Register-Guard

SALEM - Not long ago, Oregon voters sent the message to politicians not to raise taxes in tough economic times.

That, at least, was the conventional wisdom to emerge from the ballot defeats of a pair of tax-raising measures that the Legislature put out for public votes in 2002 and 2003, when Oregon government was in the depths of its worst financial shortfalls in generations.

But what about raising taxes when times turn more prosperous?

That's a question that the next Legislature will take on, in the wake of Gov. Ted Kulongoski's call for raising an assortment of taxes by a total of about $300 million over the next two years.

One day after seeing the governor Monday formally propose his package of spending and taxes, lawmakers are responding cautiously.

Rep. Phil Barnhart said it was far too early to say how he or the Legislature would come down on Kulongoski's proposals to raise taxes on corporations, smokers and drivers.

"Let me put it this way: I think the governor has an excellent chance of having his proposals heard and seriously considered," said Barnhart, a Eugene Democrat who could end up leading the House Revenue Committee next session.

That's a far cry from a ringing endorsement of the governor's call for increasing the corporate minimum tax; adding 84 cents to the tax on cigarettes; and his recommendation to move the Oregon State Police out of the general fund and fund the law enforcement service by enacting a tax on auto insurance.

Voters last month returned Democrats to the majority in both chambers of the Legislature for the first time since 1990. The Senate already was in Democratic control; the House switched from the Republicans to the Democrats when Democrats won won 31 of its 60 seats. So a Democratic governor seems at least guaranteed a hearing.

But when it comes to taxes, that legislative majority isn't big enough. Oregon law requires revenue-raising measures to begin in the House and to pass each chamber with a three-fifths majority - 36 votes in the House and 18 votes in the Senate.

In the Senate, Democrats hold 17 seats. But with two independents and a handful of moderate Republicans, that chamber is seen as the one where Kulongoski's tax proposals will have an easier time.

Senate Revenue Committee Chairman Ryan Deckert, D-Beaverton, has worked closely with Oregon corporate leaders to find common cause around the increase in the corporate minimum tax, along with the cancellation of next year's projected $275 million in corporate kicker rebates from the state to corporations. Business leaders seem amenable to such changes, he said, provided the money goes to areas they see as good investments. Deckert said that seems to be the case with Kulongoski's proposals to use the corporate tax increase to improve early-childhood education and make college affordable, and that the canceled kicker dollars go to a state government rainy-day fund.

Deckert said he thinks Oregonians would accept a higher tax on cigarettes, since under Kulongoski's plan the money would help extend medical coverage to 111,000 uninsured youngsters, and other health care programs. Also, the higher tax would likely drive down tobacco use, he noted.

"If you're going to do something, you need to dedicate it to a purpose that people value," he said.

But Deckert was skeptical of the auto-insurance surcharge. He said it lacked the social benefit of a cigarette tax, and would hit the middle- and lower-income households that politicians want to shield from higher taxes.

Kulongoski's corporate tax plan would require businesses to pay at least $25 if their in-state sales of goods or services are below $50,000 a year. It would go up on a sliding scale to $5,000 for those with in-state sales above $5 million. That would be the first change in the minimum tax since 1931.

J.L. Wilson, Oregon director of the National Federation of Independent Business, said large corporations may be willing to pay more "if for no other reason than that they're tired of the public-relations nightmare of paying only $10."

But for smaller businesses, he said, "that is a legitimate, huge tax increase."

Wilson noted that at least five Republicans would have to support a tax increase for it to pass. And when it comes to the corporate minimum tax, he said he was counting on the GOP to come to the rescue of small businesses.

House Republican Leader Wayne Scott of Canby said his members are dubious about raising taxes when revenue, especially individual and corporate income taxes, already is growing by leaps through the current Oregon tax code.

The governor's recommended budget of $14.9 billion represents a 20 percent increase from the current discretionary budget for 2007-09.

TAX PROPOSALS

Gov. Ted Kulongoski's call for higher taxes:

Corporate minimum tax: Increase from current $10 a year to a scale of $25 to $5,000, depending on sales volume. Revenue estimate: $85 million per biennium for education.

Cigarettes tax: Boost tax 84 cents per pack to $2.02 per pack. Revenue: Up to $190 million per biennium for health care.

Car insurance: $24 a year for typical driver. Revenue: About $25 million per biennium for state police.

WHAT DO YOU THINK? Online forum: Share your views of the tax and spending proposals at www.registerguard.com/talk