SALEM - The biggest personal income tax “kicker” in Oregon history may be coming to taxpayers in 2007, thanks to a surging state economy, but Gov. Ted Kulongoski proposes suspending the refunds.

The projected $883 million tax refund would amount to about $175 for every $1,000 in personal income taxes paid in Oregon, state economist Tom Potiowsky said Thursday in his quarterly revenue and economic forecast.

But Kulongoski said he will ask the Legislature to suspend the kicker for the next six years and reinvest that money in the state economy.

“Oregon should call a ‘timeout' for three bienniums to restore a budget severely hurt by recession,” he said.

He added that an estimated corporate kicker of $198 million should be dedicated to a “rainy day” fund to cushion the budget from another recession.

Ron Saxton, the Republican challenger to the Democratic governor, said Kulongoski was proposing what amounted to “an $883 million tax increase.”

“It seems to me that is a pretty clear choice for voters,” Saxton said.

But Kulongoski said the choice is about reinvesting money in a state struggling to fund schools and health care.

“It's not about me. It's about Oregon,” he said at a news conference when asked whether his proposal to suspend the kicker gave Saxton an advantage.

Kulongoski said Oregon is competing with other states in a global economy, and reductions in services such as education and health care make the state less attractive to business.

Saxton responded that improving schools “is a goal I think we all share. This is about changing the way state government operates. It's about growing the economy in a sustainable, long-term way.”

The two major-party candidates would be joined by at least one more competitor if state Sen. Ben Westlund gathers enough petitions to run as an independent.

Stacy Dycus, spokeswoman for Westlund, said he wants to include the kicker refund in a discussion about broader tax reform for a state that relies too heavily on income taxes for the bulk of its revenue.

Westlund has suggested cutting income taxes by about half while adding a sales tax or a value-added tax to spread the tax burden more evenly.

“This three-biennium proposal is just another short-term Band-Aid on the artery that is Oregon's revenue system,” Dycus said.

In his forecast, Potiowsky said the economy is expected to slow next year as the housing market cools and energy prices increase.

“We think businesses are already seeing the bottom line and will have to pass along costs to consumers,” Potiowsky said.

In one of the first times the issue has been presented to lawmakers during the revenue forecast, Potiowsky also noted that only about 1,700 Oregonians control about 25 to 30 percent of the wealth in the state. Their decisions about whether to sell their investments have a volatile effect on income from the state capital gains tax, he said.

State Sen. Ryan Deckert, D-Beaverton, who leads the Senate Revenue Committee, called it “literally one of the most surprising moments in my time down here.”

Potiowsky said that capital gains tax revenues in the state could be inflated by as much as $100 million, after the sale of more than $1 billion in Nike Inc. stock by the athletic shoe and clothing company's founder, Phil Knight, depending upon tax deductions and previous losses.

“It could increase capital gains revenue by nearly 20 percent, just like that,” Potiowsky said.