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The Associated Press December 22, 2011, 7:02PM ET

Ore. group fights Measure 66 tax drop for wealthy

Wealthy Oregonians will get a bit of a break on their income taxes next year, and a left-leaning interest group says it will fight the automatic cut included in a voter-approved tax measure.

Our Oregon, which is backed largely by unions, says the Legislature shouldn't allow the top tax rates to drop at a time when schools have to cram more students into classrooms and lawmakers are pondering more cuts to programs that help seniors and people with low incomes.

But the idea is unlikely to go far in Salem, where it would require approval from a supermajority of lawmakers.

The tax drop was built into Measure 66, the hotly contested referendum that raised taxes on people making at least $125,000. Starting next year, top tax rates will be lower than they are this year, but still higher than they were before Measure 66 was enacted.

"We're going to be making sure that Oregonians know that the richest 2 percent are getting a pretty massive tax cut and that they should call on the Legislature to fix that," said Scott Moore, a spokesman for Our Oregon.

The organization sent a plea this week for its members to contact their representatives. Lawmakers return to Salem in February for a monthlong legislative session that is likely to be dominated by budget discussions.

If lawmakers spend time talking taxes next year, they won't be alone. Faced with a deep deficit, lawmakers in Washington state are expected to look for new revenue next year.

Oregon Gov. John Kitzhaber has ordered state agencies to freeze most hiring, limit spending and stop new enrollments in some health and daycare services for people with low incomes. Economists have projected that Oregon will take in $300 million less than they predicted when lawmakers built a $14.6 billion spending plan for the current two-year budget cycle.

Opponents of tax hikes on the wealthy have argued that Oregon's comparatively high income taxes discourage business investments that create jobs and grow the economy.

"We've made the argument all along: The rate, even at the lower level, remains very high," said Duncan Wyse, president of the Oregon Business Council.

Measure 66 stemmed from Democrats' efforts to minimize cuts to services while balancing the state budget in 2009. Republicans and business groups protested, collecting enough signatures to send the tax hike to the ballot in January 2010. Voters approved it, along with separate provision known as Measure 67, which raised corporate taxes.

For the 2012 tax year and beyond, the state's highest personal income tax rate will be 9.9 percent. The highest rate has been 11 percent for the last three years, and it was 9 percent before Measure 66 was enacted.

A taxpayer earning $125,000 in 2012 will pay $1,125 less in taxes than he would on the same income in 2011.

Continuing with the current rates would require approval from three-fifths of lawmakers in the House and Senate, and the governor's signature. The requirement was a tough burden to meet in a House evenly split between Republicans and Democrats, and a Senate where Democrats have a slim majority. Unlike 2009 when Democrats had supermajorities in both chambers, a tax hike next year would require bipartisan support.

"I think the people of Oregon are expecting us to go in there and continue to find ways to improve government efficiency and have government live within their own means," said Rep. Kevin Cameron of Salem, the Republican leader. "There's no tax increases on the horizon."

Rep. Tina Kotek of Portland, the Democratic leader, didn't rule it out, said Amelia Porterfield, her chief of staff.

"We're going to look under every rock to avoid deeper cuts, and part of that is keeping all options on the table for February," Porterfield said.

Measure 66 raised $349 million in the two-year budget cycle that ended June 30, according to an analysis presented to lawmakers last month. The income is expected to drop to $215 million in the current biennium, which has six months at the higher rate and 18 months at the lower one.

Shortly after Oregon voters approved tax hikes on the rich in 2010, Washington voters overwhelmingly rejected a proposed income tax on the state's wealthiest residents. Initiative 1098, which was pushed by Bill Gates Sr., the father of Microsoft founder Bill Gates, would have taxed the top 1.2 percent of earners in Washington state and generated close to $11 billion over five years for education and health care, according to supporters.

As Washington lawmakers continue to grapple with budget problems, talk has again turned to finding new revenue. When the Legislature reconvenes in January, it will likely consider a sales tax hike to help deal with a $1 billion deficit, though some are pushing for a renewed debate about implementing some type of income tax.

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