Feb. 17--OLYMPIA -- Gov. Chris Gregoire on Wednesday proposed raising $605 million through a combination of new taxes and by closing existing tax exemptions and credits.

Gregoire's plan contains no general sales-tax increase, as favored by some Democrats in the Legislature. Instead, the governor would focus on out-of-state companies, triple an existing chemical tax and add sales taxes to discretionary items such as candy, soda and cigarettes.

The three biggest tax proposals are a nickel increase in carbonated drinks, expected to bring in about $94 million; a 1-cent-per-ounce tax on bottled water that would bring in about $135 million; and a tripling of the state's "hazardous-substances tax" on petroleum, pesticides and other chemicals that would raise $148 million for the state general fund.

Overall, her package includes 14 proposals to increase taxes or close exemptions, such as one for gold bullion.

The governor also is counting on $435 million in additional aid from the federal government.

The governor's package is the first specific tax proposal to come out this session, but it won't be the last. Senate Democrats are expected to come out with their own tax package next week, followed by the House.

The governor has said for months that the state needs to bring in more money through tax increases to avoid deep cuts in state services. Lawmakers have to close a $2.8 billion shortfall in the current two-year budget, which runs through June 2011.

Gregoire has said that unless the state brings in more money, the Legislature will have to whack programs such as state-subsidized health insurance for thousands of low-income workers, aid to people who can't work because of disabilities, and financial aid for lower-income college students.

Republicans contend tax increases will hurt the economy, and maintain the state should close the budget gap through cuts and by finding cheaper ways to provide current services.

Key elements of the governor's tax package include:

--Oil tax. Triple the existing "hazardous substances" tax on oil and other chemicals to raise $215 million. Of that, $148 million would be dedicated to the general fund, with the remaining $67 million devoted to cleaning up polluted stormwater harmful to Puget Sound and other waterways. Most of the money would be paid by the state's five oil refineries.

--Bottled water. Add a 1-cent-per-ounce sales tax on bottled water, raising $135 million.

--Soda pop. Add a 5-cent tax per 12-ounce can of soda and repeal a business-and-occupation tax credit companies receive for syrup used to make soda drinks. That would raise more than $100 million.

--Cigarettes. Raise the state sales tax on cigarettes and other tobacco products by $89 million.

--Out-of-state businesses: Impose taxes on some out-of-state companies on the portion of business they do here. The so-called "economic nexus" tax would mainly hit banks and credit-card firms, raising $73 million.

--Candy and gum. Extend the state sales tax to candy and gum to bring in $28 million.

--Tax loopholes: Support a plan by the Department of Revenue to close several "abusive" tax loopholes by which companies dodge or reduce taxes. That would raise about $12 million.

In addition, Gregoire supports legislation clarifying state law to recapture revenue the state could lose as a result of recent court rulings. The largest chunk comes from a ruling that said an out-of-state foodseller qualified for a state tax exemption. In all, the legislation would save or restore an estimated $170 million for the budget.

Gregoire's proposal comes as the Legislature gets closer to suspending Initiative 960, the tax-limiting measure that requires a two-thirds vote of the Legislature for tax increases.

The state House is expected to pass a bill suspending most of the initiative Wednesday night. The Senate already passed a version of that bill.

Andrew Garber: 360-236-8268 or agarber@seattletimes.com. Jim Brunner: 360-236-8267 or jbrunner@seattletimes.com.

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