By Jim Carlton

PORTLAND, Ore. -- Tax increases are anathema to most voters in Oregon, judging by their rejecting attempts to impose a sales tax nine times since the 1930s. But backers of a ballot proposition say there is momentum behind an effort to boost taxes on gross receipts of large businesses from .01% to 2.5%, which would make it the highest in the country.

The measure would provide $3 billion a year in additional funds -- boosting the state's general fund by roughly a third -- to help pay for the state's struggling school system, as well as health-care and senior-services programs.

"I think we have a very powerful case to make," said Ben Unger, executive director of Our Oregon, which is campaigning for the tax hike and has support from public unions in the state as well as Democratic Gov. Kate Brown.

Cuts to education, in particular, have resulted in Oregon having some of the highest classroom sizes in the nation with one of the shortest school years, proponents of the measures say. The state has one of the lowest high school graduation rates in the country, according to new figures released by the White House this month.

Oregon's corporate tax rate, meanwhile, is tied with Connecticut for lowest in the country. Companies with Oregon sales of more than $25 million that are registered as 'C' corporations -- those taxed separately from their owners -- would pay the new rate if the measure passes. It would join five other states in imposing such a tax, according to the Tax Foundation, a nonprofit think tank in Washington.

Oregon business groups have raised at least $22 million so far as part of a campaign to convince voters the higher corporate tax under what is known as Measure 97 would cause prices on consumer goods and services to rise while discouraging companies from investing in the state.

As of Oct. 24, supporters of the measure had raised $10.6 million, according to a spokeswoman for the Oregon Secretary of State's office, who said the combined spending broke a record for a measure in the state.

A poll released Oct. 18 on behalf of The Oregonian/Oregon Live and KGW-TV found 46% of respondents supported the corporate tax hike, while 47% were opposed. "It's going to be a tough sell," said Jim Moore, director of the Tom McCall Center for Policy Innovation at Pacific University in Forest Grove, Ore.

The tax is meant to target the largest and wealthiest corporations -- like Wal-Mart Stores Inc. -- but smaller-business owners have been among its most vocal opponents.

"If this measure passes, there will be a great big sign over the state of Oregon saying business is not welcome here," said David Chown, co-owner of Chown Hardware in Portland. His business doesn't make enough in sales to pay the proposed tax rate, but he worries it will have an impact anyway.

Chown Hardware, a family business started 137 years ago, generates $20 million in annual sales of bathtubs, mirrors and other fixtures in Oregon. Mr. Chown said the company might see fewer purchases from its big corporate customers and face lower profits when its revenues top $25 million because of the new tax.

Executives at Umpqua Dairy Products, an 85-year-old family-owned business which employs 260 people, said they would have a hard time continuing to operate if the measure passes. They said the new tax would exceed the dairy industry's profit margin of "under 2%" in the state.

"You can't stay in business very long in that position," said Doug Feldkamp, president of the dairy company based in Roseburg, Ore.

Voters passed property tax limits in 1990 akin to California's Proposition 13, forcing Oregon to rely on personal income taxes for 70% its general fund budget -- the highest percentage for any state, said Paul Warner, head of the state Legislative Revenue Office.

Oregon's personal income tax rates top out at 9.9% -- second highest in the country behind 13.3% in California. Another neighboring state, Washington, has no state income tax.

Oregon cut 3,500 teacher jobs after the 2008-2009 recession, or about 10% of the workforce. Funding has improved since then, but education leaders say the state needs about $1 billion a year more for schools.

"We have for over two decades endured cuts that have impacted every student in this state," said Hanna Vaandering, president of the Oregon Education Association teacher's union. "We can't grow an economy when we can't provide quality education and prepare our workers for jobs in the future."The measure's opponents agree schools need more funding, but say this isn't the way to do it. Every major chamber of commerce group in Oregon opposes the measure.

In his office's analysis, Mr. Warner said the higher tax would improve the state's budget stability without causing too much of a disruption. "It certainly wouldn't stop the growth of the economy, although it may dampen it some," he said.

(END) Dow Jones Newswires

October 31, 2016 15:30 ET (19:30 GMT)

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