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Thursday, November 19, 1992 - Page updated at 12:00 AM

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`Last Resort' First On Lowry's Lips -- Budget Woes Prompt Him To Seek New Taxes

OLYMPIA - It took Mike Lowry just 14 days and 17 hours to get to what he promised voters would be his "last resort."

Yesterday, barely two weeks after being elected governor, Lowry said he will ask the Legislature to raise taxes.

The Democratic governor-elect told the Olympia Press Club he will propose extending the sales tax to services such as accounting and legal work, and creating a new tax on dividend and interest income in excess of $50,000. Both are ideas long opposed by the state's most powerful lobbies.

Although he won't take office until January, Lowry may have seen "last resort" written in yesterday's news about the state's increasingly bleak financial picture. State economist Chang Mook Sohn, citing lost aerospace jobs and a continued weak economy in the Puget Sound area, added another $100 million to the projected budget deficit.

That leaves a potential shortfall of $1.2 billon to $1.8 billion during the next two years.

Lowry, who also wants to give teachers and state employees a pay raise and protect their benefits, is figuring on the worst.

He said he will propose as much as $800 million in cuts, including laying off at least 1,500 state employees, consolidating programs and scouring the budget for waste. Further cuts - in colleges, child welfare programs and other services - would be too devastating for the public to accept, he insisted.

Some fellow Democrats, who will control both chambers of the

Legislature, would like Lowry to hush up a bit on the need for higher taxes right now, but the governor-elect doesn't see the point.

"Hey, I'm looking for a miracle. There are no miracles," he said. "I didn't say one thing that I haven't said before during the campaign. I don't see a way out of the last resort of finding new revenues."

Len McComb, budget chief for outgoing Gov. Booth Gardner, also said new taxes should be considered a foregone conclusion.

Other Democratic leaders won't go that far, or like Senate Majority Leader Marcus Gaspard, D-Puyallup, will concede that new taxes are likely only when pressed.

NEW IMAGE AT STAKE

Democrats regained control of the Senate for the first time since 1987 by electing several conservatives who campaigned against the tax-and-spend image of their own party, and they aren't eager to re-embrace it.

"We're at the point in the process where we're not ready to talk about taxes," said Sen. Nita Rinehart, the Seattle Democrat who yesterday was named chairwoman of the Senate Ways and Means Committee, that body's budget-writing committee.

"Every member of our caucus wants to go over every item in the budget before we even broach the notion of not doing this with cuts."

Even without a consensus on the need for more money, Lowry concedes his plans may never make it through the Legislature.

His proposal would extend the sales tax to services such as accounting, legal work, engineering, financial consulting and architecture. The so-called "intangibles tax" would tax rental, interest or dividend income over $50,000.

Lowry says those two taxes would raise about $500 million in the 1993-95 biennium.

He terms it a fairness question: "Those would keep the burden of these increases off low- and middle-income people. We ought to better base our taxes on people's ability to pay."

But when Lowry says he wants to put more of the tax burden on the wealthy, he really means putting a lot of it on big business.

Businesses purchase the bulk of services like legal help or architectural design. And Boeing would be hit hard by a levy on interest income because the company typically has huge cash reserves, according to state budget analysts.

That guarantees powerful enemies. Lowry's two most recent predecessors, Gardner and Republican Gov. John Spellman, watched their proposals for a sales tax on services sink.

If his version doesn't work, Lowry says, there would likely be pressure for a whole range of new revenue producers, including higher "sin taxes" on cigarettes and liquor or potentially increasing current sales and business taxes. In that case, Lowry would want the increases automatically repealed after a few years.

Even as the budget troubles worsen, Lowry insists he wants to provide state employees and teachers - both groups that backed his candidacy - with some kind of pay raise. Otherwise, he said, the groups would be making disproportionate sacrifices.

COST OF RAISES

Full cost-of-living raises for teachers and state workers, as well as maintaining their current health benefits, would cost an estimated $570 million over the next two years.

He's convinced taxpayers will go along with his tax plans once they hear about the alternatives.

"There's an attitude by a lot of people that the tax hit on them is a lot bigger than it really is," he said. "I think they'd be more worried if they know what they could lose."

Still, with a lot of newly elected lawmakers fearful they'll lose their seats, Sen. Janice Niemi, D-Seattle, would like Lowry to proceed more cautiously in laying out specific plans.

"All these proposals could look pretty frightening and make people dig their heels in," Niemi said.

"I thought it might be good to ease people into it by proving how deep the cuts will have to be first."

Copyright (c) 1992 Seattle Times Company, All Rights Reserved.

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