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Wed., Feb. 17, 2010, 2:29 p.m.

Gregoire floats tax plan

OLYMPIA -- Gov. Chris Gregoire proposed this afternoon a series of tax increases as part of what she calls a "balanced approach" to the worst economic times in more than 70 years.

She said the Legislature should pass a budget that makes about $1 billion in cuts, raises about $605 million in taxes, factors in expected increases in federal funds for medical programs, and uses about $677 million in budget reserves or fund transfers.

For that extra tax money, Gregoire wants the Legislature to:

-- extend the sales tax to candy and gum;

--place an excise tax of 1 cent per ounce on bottled water;

--place an excise tax on soda that amounts to a nickel for a 12 ounce can;

--increase the hazardous substance tax from .7 percent to 2 percent, which amounts to an increase of 3 cents to 5 cents per gallon, depending on who's making the estimate.sources in the oil industry said could raise the price of gasoline by about 4 cents per gallon;

--eliminate business and occupation tax exemptions for sales of gold bullion and syrup used in carbonated beverages, and require corporate directors to pay taxes on the fees they receive for their services.

It does not have a general increase in either the sales tax or the B&O tax. Some legislators have proposed a temporary increase in the sales tax of up to 1 percent, tied either to a time limit or a sign that the economy was improving.

Gregoire said she and her fiscal advisers studied a sales tax increase and rejected it as being regressive and possibly hurting the recovery. But she does extend the sales tax to candy, gum and bottled water, and hikes taxes on cigarettes, all of which she calls discretionary.

"I don't think the economic recovery of the state of Washington relies on cigarettes, candy, gum and bottled water," she said.

Gregire also wants the Legislature to make some other changes to the state's tax code, including an exemption to the business and occupation tax for out-of-state companies that sell directly to consumers. A state Supreme Court case last year said the current exemption for door-to-door sellers like Avon and Mary Kay representatives also covers out-of-state wholesalers like Dot Foods; fixing that would bring in another $154 million in the current biennium.

Gregoire told leaders of both parties in both chambers of the Legislature that she still plans to close 10 state institutions as a way of saving $180.5 million. Among those institutions is Pine Lodge Corrections Center for Women in Medical Lake.

Sen. Rodney Tom, D-Bellevue, the chairman of the Senate Ways and Means Committee, described the governor's latest budget proposal as a measured approach, which is what majority Democrats in both houses say they are seeking.

"Everybody has a different view of what 'measured' means," Tom said.

Senate Democrats are split between a budget that raises a menu of taxes, the way Gregoire is proposing, and a budget that gets most of its new money from something like a general sales tax increase. They expect to release a budget proposal early next week.

Although Tom indicated the final shape of the Senate budget is in doubt, he also said theyare waiting for the House to pass a bill to suspend the supermajority required to raise taxes before releasing a budget: "The longer we put that budget on the table...we've got 550 lobbyists that will come down on it like -- you fill in the word."

Republicans in both houses have said that except for changes to state law to correct the tax the Supreme Court lifted from out-of-state wholesalers, they oppose tax increases because of their effect on the economy.

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The Spokesman-Review's political team keeps a critical eye on local, state and national politics.