Olympia lawmakers eye Oregon for tax lessons

Gov. Chris Gregoire. Credit: Flickr

Last summer the legislatures of Oregon and Washington took very different tacks while attempting to balance recession-wracked budgets. The Oregon legislature passed two major tax bills to raise about $727 million; the Washington legislature rejected tax increases in hopes of finding other ways to avoid a 2010 meltdown.

As I mentioned in a June 15 posting in this space, Democrats — who control both legislatures — took opposite paths, and both rolled the dice with the voters. With ballot results due on Tuesday (Jan. 26) in Oregon, legislators in Olympia will be watching results in hopes of picking up pointers.

Oregon’s strategy appears to be winning. A poll released Tuesday by respected Portland pollster Tim Hibbitts shows both of the measures passing with votes to spare. Hibbitts is typically cautious, warning that tax votes are always volatile, but an income tax on high-earners has a 49-38 percent margin of approval and a corporate tax hike has an identical margin.

Hibbitt’s margin of error is plus or minus 4.4 percent, meaning the results could be off by that much in either direction. Both results are well outside the margin of error. To add to the impact, 45 percent of the voters Hibbitts surveyed had already mailed their ballots when the survey was conducted Jan. 14-15.

As if to reinforce his caution, a follow-up Hibbitts poll released Friday showed the gap was narrowing, as final ballots are mailed. The Friday poll showed Measure 66 at 50 percent favoring a higher income tax and 44 percent in opposition — outside the margin of error. But Measure 67, an increased corporate tax, was favored in a 48-45 split, inside the margin of error, making it too close to call.

However, The Oregonian’s Jeff Mapes also reports a poll by Eugene pollster Rick Lindholm, showing the two measures are favored 50-39 percent and 51-40 percent, respectively. I don’t know Lindholm’s work, but I have always had confidence in Hibbitts, so at least the corporate tax may depend on turnout, particularly in Portland’s Democratic neighborhoods.

Oregon’s Democratic leadership had hoped to avoid this month’s election, but business interests conducted a referendum and placed the measures on the ballot. At least one early poll, in December, showed support for both measures leading, but well below 50 percent. It appears that undecided voters, at about 25 percent, swung heavily to the tax measures. That is unusual: Support for tax votes in Oregon normally declines as the election approaches, and most have been defeated.

Could Washington legislators have taken a similar path in 2009 and, more critically, will they opt to do so this year? That is the huge question for Olympia. In May 2009, Democrats adjourned with much breast-beating about how they had avoided Republican charges of “tax and spend” with a variety of one-time money and budget cuts. “All of us were miserable together when we made the very difficult choices for the people of the state of Washington,” Gov. Gregoire said as she signed the budget.

Now it appears that the Oregon legislature can avoid a special session to deal with the defeat of its tax measures and spend the next several months praying for rain. In Olympia, a $2.6 billion gap in the state budget forces Democrats to consider at least some tax increases and grapple with Initiative 960’s requirement for a two-thirds vote to pass a tax bill without sending it to the voters. Oregon has a 60 percent requirement, which the Democrats were able to reach in 2009. But voters had the final say in any event, via the referendum.

Looking at what appears to be happening in Oregon, what possible lessons could there be for Washington legislators? First, a caveat is necessary. Oregon is weirdly counter-cyclical in terms of its politics. When I first began covering Oregon politics, Barry Goldwater had just driven the Republican wagon into the ditch in his 1964 presidential campaign and Democrats were resurgent everywhere. Except in Oregon, where Republicans overturned Democratic control of the Legislature and began nearly a decade running the Oregon House.

As Republicans surged in the Reagan years, Oregon became a solidly Democratic state, controlling both houses of the legislature and beginning in 1986 a line of Democratic governors that continues to this day. Republicans recaptured the Oregon House during the Clinton years, and during the administration of George W. Bush Oregon’s Democrats were firmly in control. Oregon seems to swim against the tide.

If there is any lesson, it is in the tactics of the “yes on taxes” campaign in Oregon’s special election ballot. Oregon Democrats, closely linked (as in Washington) to public-employee unions, crafted their campaign to stress the loss of services to ordinary people, and the loss of jobs to ordinary public employees. Instead of political figures pleading for votes, voters saw ordinary teachers and nurses talking about the ordinary folks they serve and who would be hurt if the taxes failed. The Oregonian, the state’s largest newspaper, did a superlative reporting job, detailing both measures in a balanced manner despite a “sky is falling” editorial urging defeat of both proposals.

Most of the $727 million raised by these taxes will go directly to education at some level; in fear of voter defeat of the tax measures, some Oregon school districts made defensive cuts last fall that may be difficult to reverse mid-year.

The measures themselves were carefully hewed to avoid the huge majority of voters. Measure 66 raises taxes only on household incomes above $250,000 and individuals above $125,000. Oregon relies primarily on income taxes; it has no sales tax. Measure 67 increases taxes on corporations, which according to the Council on State Taxation have been third-lowest in the nation.

Washington’s legislators face a somewhat different playing field. The lack of a state income tax precludes the high-income target used in Oregon, and Oregon’s increase in corporation taxes is less attractive in Washington, where the business and occupation tax is already criticized for being regressive. Most regressive, of course, is the sales tax, which is harder on lower-income people than on the wealthy; but Washington’s citizens already pay up to 10 percent (in Seattle) in sales taxes, which finance local as well as state governments.

It will not be easy in Olympia. As Austin Jenkins wrote for this site, Speaker Frank Chopp is reluctant to sponsor a general sales tax increase, and legislative leaders are hoping for a variety of loopholes and special taxes to close at least some of the gap.

At the end of the political day is the next election, now less than 10 months away, shadowed by the implications of “backlash” elections in Massachusetts and elsewhere in the last few months. By avoiding taxes in 2009, Washington Democrats postponed Republican attacks on “tax and spend” politicians; but it is difficult to see further postponement of that campaign issue in 2010 if any tax measure is passed, regardless of who pays and who benefits.

Oregon Democrats took that chance in 2009, and hope a victory on Tuesday will vindicate them when they hit the campaign trail this year. Republicans, newly invigorated by a populist surge, are not likely to forget that Democrats raised taxes, even if voters approved. Oh, did I mention that Sarah Palin will be speaking in Eugene (Eugene!) in April?

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