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Permanent tax hike will damage Oregon

Oregon legislators are wrongly dealing the state and its citizens a huge blow by moving this week to dramatically and permanently increase taxes on businesses and higher-income Oregonians.

For a state that remains in economic crisis, permanently raising these taxes will create ongoing negative consequences for Oregon's economy. These increases - as much as 30 percent on corporate income and about 20 percent on top wage earners - will force businesses to close, scale down or move away, inevitably reducing employment and income.

The House of Representatives voted to approve the tax measures on Tuesday in an effort to raise new money to offset state revenues decimated by the recession.

It's expected that the Oregon Senate will follow suit late Wednesday - but Portland area senators, including Ginny Burdick, Richard Devlin, Laurie Monnes Anderson, Jackie Dingfelder, Rod Monroe and Diane Rosenbaum, should slow this process and instead support better alternatives that exist.

Make no mistake, Oregon has revenue problems made worse by the recession. Those shortfalls, if not softened with new revenue, will result in unacceptable cuts to agencies, higher education, community colleges and public schools.

But the Legislature has a much better option than raising taxes. We strongly support temporary tax increases on higher-income Oregonians and business to deal with the immediate - but short-term - issues brought on by the recession.

Increase will be self-defeating

But even our support for temporary tax increases comes with a huge caveat. We think those increases should be accompanied by actual cuts to state agencies, and not just symbolic legislative reductions in what those agencies originally proposed to spend.

It's only fair. Individuals, families and businesses throughout Oregon and across the United States have cut back. Now, it's state government's turn to reduce the overall scale of its operations and expenditures.

Unless this state slows spending growth, Oregon's expenditures will continue to outstrip its general fund and lottery revenues until at least 2021 - well after the recession is a memory, according to the independent economic consulting firm ECONorthwest.

Yet, Oregon's financial problems are simply not just about revenue. State health plan expenses for an expanding number of elderly and financially indigent citizens are rising beyond control. Health care costs for state and other public agency employees are also advancing greatly. The bill for the state's constitutionally required prison programs is financially staggering. The cumulative impact is a budget in the red.

Some state legislators think the solution is to raise more revenue. They are sincere, but wrong. In the short-term, that can help, but in the long-term, permanent and large increases in personal and business income taxes will be utterly self-defeating. Oregon's system of raising revenue is dependent upon people's incomes - and a permanent increase in business taxes will discourage individuals and companies from creating the very jobs and income that sustain public services in this state.

This already is the case in the Portland area, where economists report that state income, capital gains and local tax policy drove more than $1.3 billion into the state of Washington from 1992 to 2006.

Seek temporary alternatives

Oregon legislators - and the governor - should not permanently punish citizens based upon what they earn. Rather, they should make these tax increases temporary. They should work with business, civic and employee groups to convince Oregonians that the state's personal income tax kicker needs to be repealed. They should require government to reduce its scale of operations and cut actual spending.

They should convince Oregonians to require that any ballot measure they pass can be implemented only if it is able to be financially supported on a pay-as-you-go basis. They should support federal efforts to reform health care expenditures.

The last thing the governor and the Legislature should do is adopt tax policies that stifle Oregon's economy and likely set the stage for tax-referral ballot campaigns this fall that will pit businesses against state employees and public unions.