SALEM, Ore. – Proposed beer and cigarette tax increases have been shelved by Democratic legislative leaders who say they don’t want to increase the tax burden on working class people in these tough economic times.

But there’s another issue at play here – lawmakers also don’t want beer and cigarette tax hikes to drag down the big income tax increase package they’ve already passed to balance the next two-year budget.

The $733 million tax increase on corporations and upper-income households is central to the Democrats’ strategy to keep state services afloat by making some cuts, using reserves and stimulus dollars and trying to avoid raising taxes on lower- and middle-income Oregonians.

“At this point, so-called ‘sin’ taxes do not meet the test,” Oregon House Speaker Dave Hunt said on Friday.

That means there will be no further consideration this year of a 60-cent-a-pack cigarette tax hike to pay for public health and tobacco reduction efforts or a beer tax that sponsors say would add 14 cents to the cost of a glass of beer to help pay for addiction treatment.

Backers of those ’sin’ taxes are disappointed. But they say they understand the need to hold off for now given the likelihood that anti-tax-increase activists will succeed with a referral campaign to force a statewide vote on the Democrats’ budget-balancing income tax package.

The worry is that the beer and tobacco industries also would have tried to refer to the voters any tax increases on those products - resulting in multiple tax increase measures on one statewide ballot early next year.

“There was concern that the tobacco industry would come into a ballot measure fight, and potentially bring down the tobacco tax and all other taxes on the ballot,” said Alejandro Queral of the American Heart Association, a leading backer of the cigarette tax.

Queral also said, however, that cigarette tax supporters will be back with a new proposal, and he said he believes they have enough support to prevail in a future legislative session.

Similarly, state Sen. Floyd Prozanksi, one of the chief sponsors of the beer tax increase, said that while that proposal has been sidelined for now, it likely will be front-and-center when the 2010 Legislature meets.

“A lot of people have sent me e-mails favoring this as a sensible, reasonable approach,” the Eugene Democrat said of his beer tax plan. “I believe we will be talking about this next February.”

The beer industry has managed to bottle up beer tax increases for the past 32 years, but Oregon lawmakers have voted to pass cigarette tax hikes over the years.

In the 2007 session, lawmakers approved an 84.5-cent-pack cigarette tax increase to expand health coverage to uninsured children. But the tax subsequently was referred to the ballot and rejected by Oregon voters later that year.

That came after the tobacco industry spent $12 million on a TV campaign that focused on what it called the ill-advised move of enshrining the tobacco tax in Oregon’s constitution.

House Democrats had reluctantly placed the cigarette tax on the ballot as a constitutional amendment because of House Republicans’ refusal to provide the votes needed to pass the tax outright or place it before voters as a statute.

This year, Democrats avoided using a cigarette tax increase as a way to expand children’s health program. Instead, they have approved higher taxes on hospitals and health insurers to extend coverage to 80,000 children and 35,000 low-income adults.

Political analyst Jim Moore said that, from the Democrats’ perspective, it makes political sense to put the tobacco and beer taxes off to one side right now if their goal is to have the $733 million income tax package survive a trip to the ballot.

“The cigarette and beer taxes aren’t central to the budget, so they don’t bring them up right now.,” Moore said.

AP-WS-06-20-09 1836EDT