SAN FRANCISCO - The Oregon Legislature last week passed a $773 million tax increase that will help it close a projected $4 billion hole in the state's 2009-2011 biennial budget.
Gov. Ted Kulongoski plans to sign the legislation, which raises taxes on corporations and on individuals who make more than $125,000 a year and families that make more than $250,000 a year.
"Now we have a clear bath to a balanced budget for 2009-2011," said House Speaker Dave Hunt, D-Clackamas County.
Lawmakers plan to close about half of the budget gap with $2 billion of spending cuts. They plan to close the rest of the gap with federal stimulus dollars and reserves.
As part of the legislative deal that led to the tax increases, lawmakers also agreed to create a permanent funding source for the state's rainy-day fund, which was created in 2007. Under still pending legislation, the state would direct a permanent tax increase on corporate income above $10 million into the rainy-day fund beginning in 2013.
The revenue raising legislation "represents a major step forward in bringing fairness to Oregon's tax structure that will also ensure we have the means to take a balanced approach to our current economic crisis," said Kulongoski, a Democrat. "This vote was not easy, but it was necessary to protect our middle class and prevent devastating cuts to programs like education, health care and public safety."
Oregon's tax code includes rates for corporate taxes and minimum payments depending on revenues. Lawmakers increased the corporate minimum tax to $150 for companies with sales under $500,000 and capped the minimum tax at $100,000 for companies with annual revenues over $100 million. Currently, about two-thirds of Oregon companies pay a $10 corporate minimum tax, the same rate they've paid since the 1930s.
Oregon's corporate tax rate is currently 6.6%. It would temporarily rise to 7.9% for net income above $250,000 during the upcoming biennium before falling to 7.6% in 2011.
Individual tax rates would rise to 10.8% from 9% for households earning $250,000 to $500,000 a year. The rate would rise to 11% for households earning more than $500,000. Like the corporate tax hike, the personal income tax increase is partially temporary. The rate for all households earning more than $250,000 a year would drop back to 9.9% in 2012.
The tax increases are the latest in a series of major revenue-raising measures that the Democrat-controlled Legislative Assembly has passed this session. Lawmakers last month approved $300 million a year in new gas taxes and vehicle fees to back transportation infrastructure spending. Last week they passed a $433 million tax increase over two years on health care providers and health insurance premiums to fund an expansion of the State Children's Health Insurance Plan.
Republicans, who are the minority party in both houses of the legislature, lambasted the income tax hikes and the health care plan, saying they would cost jobs. Oregon's jobless rate rose to 12% in April, the second-highest in the nation after Michigan.
"These tax increases were not necessary, yet Democrats are pushing ahead despite the consequences to Oregon jobs and our economy," said House Republican Leader Bruce Hanna, R-Roseburg.
Hanna and Republicans proposed balancing the budget with larger spending cuts and more spending from reserves.
