Time for a Sales Tax?

Oregon is not only just one of five states without a sales tax, it's also the state where not having a sales tax is a cultural value.  It's a surprise, then, to hear two gubernatorial candidates suggest that it might be time.  First came Ben Westlund:

It’s no secret that I have supported a sales tax in the past and that’s true…

And on Monday, Governor Kulongoski "theoretically" suggested it:

We need to have a tax system that provides stability over the long term, which would include, in my opinion, a substantial reduction in the income tax and looking at a consumption tax of some kind.

The state currently receives 90% of its general budget from an income tax--a prescription for instability.  One solution is join 45 other states by implementing a sales tax.  Is it time?

Discuss.

Comments

  • Larry (unverified)
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    That is a key question for Oregon. But will those bold enough to ask that very responsible question end up like Bush did for daring to ask a simlarly bold question about Social Security reform? This is a great issue to demogogue on both sides.

    I agree with Ted/Ben: Having a singular tax is not very stable. Reducing the Income Tax and replacing that reduction with a Sales Tax (or Consumption Tax, or a VAT) would provide more stability. Stability is a good thing. Also a good thing is to have out of state visitors also pay the Sales Tax.

    Key questions that voters will ask: 1- If you reduce the Income Tax by X, will you add the increased Sales Tax by X+Y? (Will this be Tax Revenue neutral or an increase?) 2-How will the voters know that government (ie legislators and governors) will not continue to raise the rate of the Sales Tax once we have it?

    Larry

  • JHL (unverified)
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    Larry -- I think the line should be "I agree with Ben... with whom Ted also agrees" :)

    In response to your question, looks like Westlund's had the answer up on his website regarding the details of his plan. Ted... not so much. (Sounds like Ted just thought it was a good idea without actually working out the details.)

    As I understand it, everyone who pays the income tax gets a tax cut when you combine everything... less money coming out of my pocketbook. (Not that I carry a pocketbook.) The added revenue is from people who don't bother paying their fair income tax, but do spend money:

    • People who file 1099 forms (instead of W-2) to the IRS and send nothing to Salem
    • People in an illegal industry
    • Huge corporations with an operating budget but no apparent net profit
    • Undocumented workers
    • etc

    So for me, who dutifully sends taxes to Salem every year, I will be paying slightly more in sales tax, but plenty less in income tax. I'm fine with that.

    As for question 2... Well, that's a question for the ages.

  • Jon (unverified)
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    Also a good thing is to have out of state visitors also pay the Sales Tax.

    On what? Food & gas wont fall under a sales tax, and hotels are already taxed. Are visitors coming here to buy cars and appliances?

    Ok, if they eat at a restaurant. But thats about it...

    The only thing going for it is we would actually get the illegals to pay some taxes.

    And what about the poor? Doesnt a sales tax affect them the most?

  • Jon (unverified)
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    How will the voters know that government (ie legislators and governors) will not continue to raise the rate of the Sales Tax once we have it?

    C'mon...you know the answer to that.

    There is no guarantee. You know once its on the books, they can come up with any reason to raise it over and over again. And in this state, they will do it without a vote. Or most likely, we will vote "no", and they will do it anyway.

  • (Show?)

    Let me repeat what I already said on this topic before. Our problem isn't lack of a regressive sales tax. It's the kicker - that exacerbates the swings in our economy.

    The time people need a tax rebate isn't when the State economy does unexpectedly well. It's when the economy does unexpectedly poorly. That's also the time we need to shore up government services - like, say, unemployment insurance.

    The solution to the State's funding problem is obvious. Have the kicker "kick" into a rainy day fund. To keep the legislature from declaring every day to be a "rainy day" (this is Oregon, after all), we make it so that the fund can only be accessed when we have a quarter of negative growth, or some other neutral criteria. "Spending" in this case means not just government spending, but "tax expenditures" as well (e.g. tax rebates).

    There. Volatility problem solved. And it didn't hurt the poor one bit. Wasn't that simple?

  • (Show?)

    Ahhh, the instability argument.

    I don't suppose anyone's looked at the other states that have sales taxes to see how their finances are doing, have they?

    In California, the sales tax is the second largest source of revenue after the personal income tax. Presumably, their finances would have to be in good order, no? But last I heard, they'd voted in Arnold Schwarzenegger -- a movie star -- to replace Gray Davis because of problems with the state budget a couple years back. And from what I understand, Arnie's still having a few problems with their finances.

    Has anyone got an example of a state where the sales tax has actually stabilized the revenues over a significant period of time? Or is it just another economic myth?

  • (Show?)

    As Larry sez, subject to demagoguery:

    Don't forget that the already anemic capital gains tax will be cut even further because we know that people who don't actually produce anything, but live on investment income, will just quit investing if they have to pay the same goddamned taxes I pay for the privilege of running a grinder and getting welding sparks thrown in my face.

    I guess if we started taxing rationally, we might be targeting people with huge piles of cash that pay little or no taxes, instead of targeting people who are below the bottom rung of the ladder, and probably won't add much additional revenue anyway.

    Of course the people with huge piles of cash give it to politicians and sponsors of initiatives that will propose tax plans that protect their donor's interests.

    To do otherwise would be irrational.

  • (Show?)

    I guess if we started taxing rationally, we might be targeting people with huge piles of cash that pay little or no taxes, instead of targeting people who are below the bottom rung of the ladder, and probably won't add much additional revenue anyway.

    This is the correct answer, but I don't know that it's a real-world one. In a perfect world, we'd have both progressive taxation and an adequate safety net; people who found themselves falling on hard times would have the resources to get back in the game.

    Unfortunately, I see no chance of progressive taxation in the foreseeable future. So, if we stick to that benchmark, it means sticking with our current, wholly inadequate system. The result isn't just that the poor pay more in taxes than they should (the current system is essentially flat--Oregonians across the quintiles pay roughly the same amount of their incomes in taxation), but far worse, that the safety net disintigrates. How many kids are going to go hungry in the interim; how many get crappy educations? How many of our high school graduates will go without college? (And on and on.)

    I don't know that we have the luxury of "best case" scenarios. I'm looking at things, and we're in a worst case--everything's up from here. I'd vote for a sales tax in a New York--make that Stumptown--minute.

  • (Show?)

    From a CNN report released today:

    In 2004, the ratio of average CEO pay to the average pay of a production (i.e., non-management) worker was 431-to-1....In 1990...CEOs made about 107 times more than the average worker, while in 1982, the average CEO made only 42 times more.

    "Pay" in this instance refers to total compensation – including salary, bonuses, restricted stock awards, payouts on long-term incentives and the value of options exercised during the year.

    So we're gonna cut taxes further for these guys and institute a sales tax?

    Sounds fair to me..........

  • Mari Anne (unverified)
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    It is impossible to have this conversation without first addressing Tax fairness. Putting more of the squeeze on middle class Oregonians is not the answer when business pays less and less of the tax burden. Will never fly. Been there - several times - and done that. We've spun it every way come Sunday and never managed support over 38% support (if I remember right). I suspect things have not changed much.

    Let's get real and look at how to better balance the tax burden with what we have and set aside money for stability. During the boom days of the 90's if we had put money away, we wouldn't have been in the dire straights we find ourselves in now. But that takes courage and leadership which is sorely lacking in our elected leaders.

  • (Show?)

    But that takes courage and leadership which is sorely lacking in our elected leaders.

    Funny thing about democracy. Our elected leaders tend to have about as much courage and leadership as we allow them to have.

  • BlueNote (unverified)
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    It is time for a progressive sales tax in Oregon. Progressive means no sales tax on food or prescription drugs and a small income tax offset for the working poor. I will be waiting for the voters to approve a sales tax, and I expect that to happen just about the same time as my shipment of Pixie Dust arrives, which will be a few days after my Powerball ticket wins and I am selected to be the first 52 year old, short, fat and slow starting forward in the NBA.

  • (Show?)

    Count me in with those who think the question isn't best answered by a sales tax, but by

    1) a kicker that kicks into a rainy day fund 2) an income tax that re-balances between work income and wealth income 3) an income tax that re-balances between individual income and corporate income 4) an income tax that reflects a progressivity more in line with other states and the federal system

    It's not a hard ideological sell at all, IMO. If you are a person, you get your money from working a job, and you don't make that much, you should bear the least of the burden. If you are a corporation, or you are an individual who gets their money from already-accumulated wealth, and there's a lot of it, you should bear the most.

    Work over wealth People over corporations Less over more

  • (Show?)

    The governor didn't call for a sales tax, no matter what the Oregonian or his opponents said.

    He said, "a consumption tax of some kind"

    There are all kinds of consumption taxes besides pure retail point-of-purchase sales taxes.

    [Disclaimer: I built TedForGov.com, but I don't speak for him or his campaign.]

  • (Show?)

    The governor didn't call for a sales tax, no matter what the Oregonian or his opponents said.

    That was my reaction when I read the O piece, too, but then why didn't Lonn Hoklin immediately clarify that? Instead, he said "He was just answering a question in the best way that he could and speaking from his heart." If he meant "the Governor wasn't suggesting a sales tax," why didn't he say that. Unless of course, the Gov was suggesting it.

    (And maybe it ain't a bad idea to suggest it.)

  • (Show?)

    The simplest way to increase stability in Oregon's revenue structure is to create a real rainy day fund that will set aside money when times are good to fund critical services when the next recession comes. And it will come.

    Two bills to substantially increase our rainy day reserves passed the Senate in 2005 by large, bipartisan majorities. Governor Kulongoski stood ready to sign the bills.

    But -- surprise, surprise -- these two rainy day fund bills were blocked by House Republican party bosses from having a debate or vote in the House. House Democrats fought hard to bring these bills forward. Had a vote taken place, both bills would have passed with huge bipartisan majorities in the House.

    Until we remove these Republican party bosses, it appears that we won't get a real rainy day fund. Until we get such reserves, we won't have stability for Oregon schools, health care, or public safety.

  • Wesley Charles (unverified)
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    Of course, a sales tax would ultimately have to be approved by Oregon voters, either by referring to themselves a legislative act or by initiative.

    But here's a somewhat rhetorical question for those who live and shop in Portland:

    Have you ever noticed the license plates of the cars filling the shopping centers, Home Depots and Costco stores, ranging from Jantzen Beach all the way to NE Airport Way?

    Once those WA plates, with their substantial retail revenue, disappear from the Columbia River retail belt, what effect will that have on the local (i.e. Portland) economy?

    • Wes
  • (Show?)

    Rep. Dave Hunt's clear statement pretty much sums up the frustration of serving in the House run by Minnis. Until she is gone we can only dabble in consumption tax talk. Vote for Rob Brading. Send him what ever you can afford for his campaign! Kick her out!

    Yo Kari, you're right man. At no time in the debate did Governor Kulongoski say "sales tax." The O's headline writer should be reprimanded for a very false impression created across the state...oops I forgot, the Big "O" does that all the time. The "O" makes up the news.

  • JHL (unverified)
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    At no time in the debate did Governor Kulongoski say "sales tax."

    Well, this just about sums up Kulo's leadership these past four years. It's blatantly obvious to everyone in the whole wide world that he advocated a sales tax during the debate. I mean, duh!

    But -- oops! -- someone drew attention to a potentially controversial issue?! Nah, he never said it. In fact, Kulo doesn't even know what a sales tax is!

    Nice leadership. This must be some of that action that his supporters are always talking about.

    And while I have immense respect for Rep. Hunt, I do feel I should point out that "standing ready to sign" a bill does not equal leadership. Did Ted ever walk over to the House? Did he lobby the moderate R's? Did he try and squeeze a deal out of Minnis? Nah... he just knew that she's be an easy scapegoat come election time.

  • (Show?)

    Gimme a break, JHL--you know as well as I that it was a 2-member GOP in the House last session. If it wasn't what Minnis or Scott wanted, you could forget it.

  • MLA (unverified)
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    I worked on the floor staff of the Oregon House of Representatives during the 1983 session. The Legislature battled mightily that session to balance the budget. They had just raided SAIF's coffers and were having a diffcult time coming up with the money to balance the budget again.

    The House Revenue Committee was chaired by a very reasonable and hard working fellow by the name of Tom Throop from Bend. That committee worked very hard at accomplishing tax reform. They tried to acoomplish that result through a variety of different vehicles (homestead exemption, income tax increase, etc.)

    I can remember standing in the back of the House chamber hearing Rep. Throop announce that there was simply no other way to raise the amount of money necessary to accomplish tax reform in Oregon without a sales tax. I believed him then, and I believe him now. I suspect that Westlund and Kulongoski do too.

  • (Show?)

    Sales taxes do affect the poor quite a bit.

    Typically, they buy foods that aren't exempt from taxes. Usually exempt items are fresh/frozen meats, veggies, fruit, etc. Prepared foods (including many frozen foods) are taxed.

    Poor people are much more likely to buy prepared foods or cheap fast food items than they are fresh fruits and veggies. It's all a matter of price-- you can buy a kid meal at many McDonalds on certain days for $1; there are frozen pizzas and meals you can buy for $1.

    Even if poor people stick only with non-taxed foods, they also have to buy clothes, school supplies, household items, etc.

    What ends up happening is that poor people pay a larger percentage of their income in sales tax than those who are wealthy. And that makes for a regressive tax. At least with income tax you can up the number of claimed dependents to be able to pay less taxes up front.

  • Madam Hatter (unverified)
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    And since when does "the poor" mean only the working poor?

    Disabled folks on SSI, the retired on fixed incomes, families on TANF, etc. will not receive any benefit from a reduction in income taxes but will be forced to pay sales tax.

    As Jenni wrote above: "Even if poor people stick only with non-taxed foods, they also have to buy clothes, school supplies, household items, etc."

    The EITC is a very effective way of reducing the tax burden for the working poor. Maybe Oregon should implement something like it? It wouldn't increase the tax base, though.

    I think Wes has a really good point. Is there any way to find out or estimate the impact out-of-state shoppers have on our economy?

  • JHL (unverified)
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    torridjoe -- Sorry, I'm looking for a governor who does more than throw up his arms and say "pshaw" when he encounters House opposition.

    Yes, Minnis is a very strong-minded Speaker. Let's look for a governor who is at least as strong-minded. Kulo signed plenty of legislation that Minnis (and her donors) wanted... and it looks like he got nothing in return.

    There's this pattern of Kulo-can-do-no-wrong... anything good that happened, he takes credit for signing. Anything bad that happened, and it was Minnis' fault.

  • activist kaza (unverified)
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    The answer: no. The explanation: it's regressive. In short, anyone with progressive leanings should look at every other option before pushing the most regressive (short of gambling?) solution to the state's budget woes. Methinks Ted has just done himself a fair bit of damage with this for it once again confirms our worst fears about him...

  • (Show?)

    I'm still waiting for someone to provide an example of a state where the sales tax has made their budget woes magically disappear.

    There's no such thing as a "progressive sales tax". In order for a sales/consumption tax to provide a steady stream of revenue, it has to tax things that people need to purchase. If it only affects goods or services that people don't need, it's just as subject to volatility as income. The more the tax is weighted toward things people need to purchase (and therefore less volatile) the more it will affect the poor. If it's restricted to higher-end items that poor people don't buy, then it can't actually bring in enough money to make a difference in the state's revenue.

    California's sales tax, for instance is fairly stable, in absolute numbers and percentage-wise, bringing in between 29% and 32% of general revenue between 1999/2000 and 2003/2004. But even at 8.75%, it's only three-tenths of the revenues for each year.

    Also see Governing.com's reports:

    http://governing.com/gpp/2003/gp3or.htm http://governing.com/gpp/2003/gp3ca.htm http://governing.com/gpp/2003/gp3wa.htm

  • (Show?)

    One idea that I've been pondering.... What if we had a relatively high sales tax rate, say 8%, and then rebated back to every single citizen some equal amount... say, the amount equivalent to the taxes paid on a basic necessities basket of goods.

    That way, you'd tax everything -- avoiding the whole lobbyist feast that is the exemption-creating game -- while holding poor folks harmless for basic necessities of life.

    Obviously, details to be worked out - and I'm sure there's some wrinkle(s) I haven't thought of, but it's an idea.

  • mangoss (unverified)
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    I think your idea would work, Kari, because we would also be taxing all those people who come across the state line to shop and avoid paying taxes in WA. However, we could make it less than Washington's tax, so we still draw their $$ but rebate our citizens, thus avoiding all these shoppers who swoop in a make off without leaving anything in our coffers.

  • (Show?)

    Poor folks still end up paying taxes, which in many cases could mean the difference between paying the electricity, having food on the table, etc.

    They may get it back later, but the fact is they still have to pay it.

    As I said above, at least with the income tax, your rate depends on how much you're making. And you can lower it even more by claiming more dependents. There's also the option of claiming you're exempt if you know you won't make enough to pay taxes.

    There were plenty of times where the cost of the sales tax kept us from buy necessities. Our sales tax was just under 8% in my home county and over 8% in Houston when I lived there (state plus local add-ons). And I know there's been increases since I left in 2000.

  • (Show?)

    Kari, if you exempt lower-income people from the sales tax, you don't have enough of a base on which to draw revenue from to make the sales tax have any impact on revenue. You're either taxing them or you've somehow got to limit a consumption tax to businesses and people with higher incomes.

    The Governing.com studies I mentioned above cite Washington's system as overly-reliant on sales taxes ("volatile"). California, with both a personal income tax and sales and use taxes (which is supposed to be the multi-leg system that everyone thinks is so good) has also had a roller coaster the past few years.

    How about a progressive income tax that's got the loopholes knocked out of it?

  • Justin (unverified)
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    Yes.

  • rtaycher1987 (unverified)
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    No sales tax, delete loopholes and kicker and raise corparate tax.

  • (Show?)

    Jenni and Kaza--you are both right that sales taxes are regressive and that many have trouble paying all the bills. But as I said upthread, that's only half the picture. Many of the programs the state pays for are designed to help the poor(er), and we've been cutting those programs to beat the band since 2000.

    You don't want a sales tax--fine. But how will you pay for these programs people need to stay afloat? There are two sides to this equation, and a sales tax would address one side. There are fixes like Kari suggests that could even help regressivity.

  • (Show?)

    Jeff:

    The only suggestion I see from Kari is an "equal amount" rebate. That doesn't really address the regressivity of a consumption/sales tax.

    Nor do I see how adding a sales tax would stop programs for the poor from being cut. My understanding is that -- rather than increasing the revenue stream -- gains accorded by a consumption tax would be offset by decreases in, say, the income tax. Without an increase in revenue, programs for the poor are still going to get cut. The sales tax doesn't magically make money out of thin air.

  • Robert (unverified)
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    A rose is a rose is a rose.... Come on, Ted said "comsumption tax".....SALES TAX. Spin it anyway you want, but Ted said sales tax.....Perception is reality!!!!! He was trying to send a message to Ben....loud and clear. The Ted campaign gave us the same spin on the "joke" he made at one of the debates..."I will write in Kitzhaber, rather than support the Demo candidate for Gov." Way to go Ted.....that's what I call loyalty.

    Maybe its time to send Ted packing...

  • Anne (unverified)
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    Yes. Sales Tax.

    I grew up in Seattle, where there was one reason and one reason only to come to Portland. To go shopping. Because there's no sales tax.

    Yes, you can exempt food. Yes, you can even suspend the tax for two weeks or a month prior to school starting (Jenni, correct me if I'm wrong, but other Texans have told me that Texas does this). Yes, you can vary it based on the type of consumption - a set rate at restaurants, for example, and a higher rate for luxury goods like personal submarines (a bill to do this got killed in the 2003 legislature). Yes, a sales tax does help provide stability to the state coffers, and just cause California's all wack doesn't mean that the 47 remaining states with sales taxes are wack too. Yes, Ben Westlund is all for a sales tax, always has been, but I don't think he's copyrighted the idea. Yes, Ted Kulongoski showed leadership by honestly and forthrightly answering that our current tax system is like a one-legged stool and we need to explore other options, like, yes, lowering the income tax and implementing a sales tax. Yes, people who stand up and say that we need a sales tax have cojones and deserve credit. Yes, please, sales tax!

  • (Show?)

    There is nothing inconsistent with wanting a sales tax to assure a stable revenue source even in periods of economic downturn and wanting to fix the problems with the kicker and our all-but-flat income tax.

    A sales tax is regressive. We can have some aspects of our system that are progressive and others regressive. That is a compromise that some may support in order to stabilize our state revenue stream.

    To me, the biggest problem for the past decade has been instability. To those of you who argue regressivity, do you think the poor are better off since we've demolished the Oregon Health Plan (no revenue), have hollowed out Human Services (no revenue), are hammering the public schools (no revenue)?

    You have to make the hard choices here, folks.

  • (Show?)

    Darrel, I'll refer you to Paul's comment (11:10 AM), which captures what I was trying to say. As for Kari's suggestion, it offsets the regressivity by offset the taxes paid by lower-income folks with rebates. It's a two-step process.

    And Anne, I have to take STRONG exception to this notion of yours that "there was one reason and one reason only to come to Portland." Oregon's the best, sales tax or no!

    ;-)

  • JHL (unverified)
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    Paul is right on the money. (Delicious pun!)

    As a tax gets more stable, it gets more regressive. Property taxes, which are eternally stable, are grossly unfair to those people on a fixed income, like seniors. On the other hand, a super-progressive tax like, says Anne, a tax on submarines, fluctuates about as much as the submarine market.

    What's important to consider about this plan is the big picture -- when we combine changes to the income tax and sales tax, will we still have a tax structure which is progressive as a whole?

    Even though a three-legged stool is always stable, it can sometimes be off-kilter.

    Obviously, there's a right way and a wrong way to implement a sales tax -- and there've been a lot of great ideas here to make sure it's rolled into a progressive system.

  • (Show?)

    A few years back, Texas started suspending the sales tax on a variety of items right before school begins. That's great if you have the money right then to purchase the items you need.

    While this program does help some of the poor people, we've found that many of those who are wealthy will save up their purchases to make and do them during that period, saving a lot in sales tax.

    The sales tax in no way made Texas' budget more stable. Recently they almost were not able to start the school year because they didn't have enough money. In several instances the state has almost gone bankrupt.

  • Karl (unverified)
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    I grew up in Seattle, where there was one reason and one reason only to come to Portland. To go shopping. Because there's no sales tax. I've run into several families from Boise who do that too. Anne, if we had a sales tax , those people would stop coming to add to our economy and income tax revenues! That's a good arguement to not have a sales tax.

    A sales tax bleeds you blindly. Who knows at the end of the year how much you paid in sales tax. I guess some people would prefer not to know, but that's not me. I want to know what my contribution is and where i stand.

    One other thing that hasn't been mentioned is that a sales tax would create another bureaucracy to government and another cost to doing business. I've just about quit doing shows in WA and CA because i don't want to hassel with it anymore. In CA all the counties and cities piggyback on to it and it's different all over the state.

  • Robert Harris (unverified)
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    The fact that theres no clear consensus on BlueOregon for a sales tax should answer the question.

    On the other hand it appears some type of gross receipts tax on business, coupled with a change in the Oregon exemption, and/or a state EITC may get enough support. (Until the Republicans blitz the media tagging it as a sales tax, in which case it too will likely fail.)

  • (Show?)

    Paul, no, I don't think the poor are better off without the OHP, but I don't think making them pay for it through sales taxes is going to be any more effective than making them pay for it through income taxes. The whole point was that it was supposed to provide services for the poor that they couldn't afford by taxing everyone in the state and spreading the burden throughout the populace.

    Jeff, I've asked a couple of times for anyone to give me an example of a state where finances are in good shape because of a sales tax. Nobody wants to use CA as an example, even though they have a mix of property, income, and sales tax, fine. Just show me an example of a state whose finances are in good shape and where the money comes from.

    According to Washington's Department of Revenue, the state and local tax burden under their system for a household of 4 with an income of less than $20K is 15.7%. That drops to 9.8% for $20K-$30K and continues on down the scale until people making over $150K pay an average of 4.4% of their income in state and local taxes. According to their own figures: "Only three other states - Alaska, Tennessee and Nevada - have more regressive household burdens".

    So, that's six states. CA has a distributed tax system, but nobody wants to use it as an example because their finances are as screwed up (or more) than OR. WA is largely sales tax supported and the poorest people pay 2-4 times more of their income, percentage-wise, than the upper middle class and wealthy. AK, TN, NV have more regressive tax structures than WA does. That leaves 44 more to choose from for an example of what works and doesn't shift more of the tax burden to the poor than they're already carrying.

    Really, I'd love to see some actual figures, people, not just conjecture and happy talk. If you can't back up your assertions about a sales tax with facts, how do you actually know that you're right?

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    Darrel, according to Governing mag's more recent report (2005), the best performing states in terms of budgetary health and long-term outlook were Delaware, Kentucky, Michigan, Minnesota, Utah, and Virginia. Of those, only Delaware doesn't have a sales tax.

    I think the point I'm trying to make is not that the sales tax is the magic bullet; state budgets are extremely complex and no one piece of the system is mandatory or a poison pill. But to suggest that all states with sales taxes are in poor financial shape is stretching it.

    Incidentally, the states without a sales tax received the following grades on economic position: Alaska C+, Delaware B+, Montana C+,New Hampshire C, and Oregon D. Not exactly stellar stuff.

  • Wes Wagner (unverified)
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    What if we have a flat tax?

    Every man, woman and child pays $2350.12

    I wager if the burden of taxation was shared equally, there would actually be more accountability in our government and better planning as to which programs are really worth the money they cost.

  • (Show?)

    Actually, Jeff, I never suggested that all states with a sales tax were in bad financial shape; you're pulling a rhetorical trick there and reframing my question to make it sound more extreme than it was. This is what I said in three previous posts:

    "Has anyone got an example of a state where the sales tax has actually stabilized the revenues over a significant period of time?"

    "I'm still waiting for someone to provide an example of a state where the sales tax has made their budget woes magically disappear."

    "I've asked a couple of times for anyone to give me an example of a state where finances are in good shape because of a sales tax."

    I was asking -- and continue to ask -- for an example of how a sales tax has made the difference in making any state solvent over a long period of time. Do you have any examples? Can you show that the sales tax is what made the difference? Or am I just supposed to take your word for it that a sales tax with a wide enough base to stabilize the budget isn't going to have a regressive effect on low-income Oregonians?

    As for it being "extremely complex", I work with numbers all day long, I don't have a problem with them. And I've been studying various plans to implement a sales tax in Oregon since before I ran for the Legislature a dozen years ago, so I'm not totally unfamiliar with the arguments there, either.

    By the way, it's not surprising, given that part of Governing's rating system is based on whether the tax system is distributed over several revenue streams that a state without a sales tax fares poorly compared to states with both income and sales taxes. If you look back at the 2003 report, you see that Washington is rated badly on adequacy of revenue precisely because it's considered to be over-reliant on sales taxes.

  • LT (unverified)
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    Every man, woman and child pays $2350.12

    Talk about regressive!

    That is like 3% of the annual income of someone making $75,000 but a person working at min. wage would have to work for 300 hours to pay that, if my math is correct.

    If you want to talk flat tax, look at Ron Wyden's Fair Flat Tax.

    But maybe the comment was to distract from the question of whether a sales tax in a total reform of the tax code in this state would provide stability in our budgets.

  • (Show?)

    46 states (92% of the states) and D.C. all have a sales tax. That means only 4 states don't.

    So it goes without saying that it would be no surprise that 5 of the top 6 financially stable states would have a sales tax.

    I don't think having a sales tax means your state will do bad. However, just because your state is looking good budget-wise doesn't mean that your taxes are progressive.

    I lived in a state with sales tax for 22 years-- I have plenty of experience with it. I've had family members who were barely making ends meet and only had food and a place to stay thanks to welfare and help from family. And I can tell you that the sales tax hit them very hard.

    The fact is that unless you basically exempt most clothing, all food, household items, toiletries, etc., the poor will end up paying a larger percentage of their income in sales tax than the rich-- and that makes it regressive.

    And what are you going to do? Exempt all clothing at stores that poor people are more likely to shop at, exempt all clothing under a certain price, etc.? The state would see a lawsuit before it even went into effect. Otherwise you end up not taxing enough items, and therefore don't bring in enough taxes.

    There is really no way to keep the tax from not heavily affecting the poor unless you require them to carry a card stating they're exempt (therefore humiliating yourself every time you shop) or giving them a refund/rebate later (which means you have to keep track of every expenditure, keep receipts, and wait to get your money back).

    As someone who has fed her family on less than $20/week many times (a family of 3), I can assure you that any extra bit of money spent on things like a sales tax means less food on the table, no toilet paper in the house, etc.

  • (Show?)

    I just took a look at Westlund's proposal:

    The one that jumped out at me fairly quickly is the graphic that shows "Here’s the breakdown of expected savings per household each year (by household income)"

    I'd like to know what the makeup of the "households" is that they're using for those income levels. The numbers might be right for a single person, a "DINK" (double income, no kids), and possibly a household with 2 adults and a child. I'm not sure it's close for those with 2 or more kids-- and we've all heard the average family has 2.x kids.

    Many of them also do not own homes, so they would see no deduction in property tax. Many households at that income level rent, and a deduction in property tax just means their landlord makes a higher profit. You're extremly unlikely to see rental houses and apartments lowering their rent just because property taxes went down-- they'd just put it in their own pockets.

    When comparing "total saved" to income, this is what you find:

    $35K: 0.38% of income is saved $45K: 0.38% $55K: 0.49% $75K: 0.63% $125K: 0.56%

    This seems to show that those at the lower income levels are seeing smaller savings than those at higher incomes.

    When looking at how much is spent on sales tax, compared to income, this is what you find:

    $35K: 2.22% of income spent on sales tax $45K: 2.04% $55K: 1.91% $75K: 1.73% $125K: 1.48%

    Just as I've been saying all along, sales tax affects those at lower incomes more than it does at the higher incomes.

    And like I said above, these "savings" figures assume you own a home and are paying property taxes. That is only true for 64.3% of Oregonians (and 56.9% of those in Multnomah County), according to the 2000 Census. Those with household incomes under $40,000 (median household income in 2000 in Oregon was $40,916) are a lot less likely to own a home. So if you remove the property tax savings from those at the $35,000 income level, they end up paying $126 more a year under the plan.

    It's also not showing what would happen with those people under $35K, which is where my family (and many families across Oregon) would have been the last few years.

    We pay no federal tax, little state tax, and our property tax is in our rent. So we'd be paying sales tax on some of our food (it doesn't include prepared food, which typically means that frozen foods that are already prepared, like pizza, are taxed), all of our toiletries, household items, clothes, shoes, any toys we buy our daughter, books, etc. We wouldn't see any reduction in our federal tax or our property tax (we rent an apartment).

    Looking at the table, the federal/state reduction on those listed is right at about 1.9%. Going by that and the other trends available on the table provided, we'd see about a $532 decrease in state tax and about $672 in sales tax. With no reduction available in our federal taxes or our property taxes, we'd actually see an increase of $140. Even if we paid out the exact same percentage in sales tax as those at $35K (which is unlikely, as the trends above show the % increasing the lower the income goes), our sales tax would still be $621.60-- still $89.60 more than we pay now.

    I did all my math on a calculator, but that doesn't mean my sleep deprived brain couldn't have made a mistake somewhere.

  • (Show?)

    Darrel, you seem to believe that a sales tax can't be part of a sensible budget; I think there's ample evidence that's false. If that's not what you believe, perhaps we have no issue. The complexity I refered to was simply meant to suggest that if you take a concept like a sales tax and think you can separate it from the other numbers in a budget, you're kidding yourself. I also deal with numbers all day. So do the economists in every state in the union. So what?

    Just to be clear to both you and Jenni, I'm not suggesting that a sales tax is necessarily the way to go. But, like Paul, I think that if you're not going to consider a sales tax, you've got to figure out a different way to make revenue stable--particularly since we have the idiotic kicker law. Don't want a sales tax? What's the radical change that will bring stability to Oregon?

    My ears are open.

  • JHL (unverified)
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    Jenni -- your math seems ok to me... but like Jeff said: the lower income brackets are better off with intact services. These brackets are making disproportionately good use of the services that keep getting cut when the revenue jumps up and down -- OHS, human services, education...

    The bottom line is, those tax brackets get a tax cut. Funding to services increases. I think it's a stretch to find fault with that because someone's neighbor is saving more money then they are.

    But, I think Westlund has a good idea aside from his tax plan: "Support this solution, come up with a better one and I’ll support yours, or defend the current structure."

    Either way, it's refreshing to see a candidate with the cojones to actually lay out a plan.

  • LT (unverified)
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    Do not assume you know what a sales tax does and doesn't cover--depends on those who write it. In college I lived in a state where groceries were not subject to sales tax, but take-out and restaurant food were. And "groceries" covered both raw meat and vegetables AND frozen meals bought at a grocery store.

  • (Show?)

    Jeff, you're flat-out wrong about what I've said. I know that a consumption tax enacted on all items and services (including necessities) would provide greater stability than other forms of taxation precisely because it would tax things people can't do without. That's why a consumption/sales tax is more stable.

    The problem is, a consumption tax gets more stable as it gets more regressive. The more it's based on things people need as opposed to things people can do without, the less subject it is to economic ups and downs.

    I don't see any way for you to enact a consumption tax that has a significant effect on the stabilization fo the state's revenues that doesn't shift the tax burden further onto the poor and low-income people of Oregon. If your only goal is to stabilize revenue and you don't mind doing that by squeezing the poor, then I suppose it looks like a good option, but I'm a Democrat and I don't believe in cutting a progressive income tax system in order to enact a regressive sales tax.

    On the other hand, if you've actually got a model -- like another state -- where they've come up with a sales tax package that matches the progressivity of their (or our) income taxes, by all means bring it on. I could possibly support that.

  • (Show?)

    Most sales taxes (including Westlund's plan) specifically state that prepared foods are not exempt from the tax. Prepared foods are not only meals at restaurants and fast food joints, but also pizzas, frozen dinners, and many other frozen items.

    And not everyone at the lower income levels are "disproportionately" using the services. We haven't used a state service any more than the average person since we got off food stamps over a year ago. And our yearly income was $28,000.

    Those brackets do not get a tax cut-- they're looking at their taxes going up, according to the table on Westlund's site. Since they do not own homes, there is not a property tax decrease. This means they'll pay $100+ more in taxes than they do now.

    And since when do we ask the poor to pay more for the state services? Isn't the whole reason they need state services because they can't afford to pay for them?

    I don't think many of the people here understand what it's like to regularly have to buy food for your family with less money for a week than many spend on a day's worth of food. Some may have done it during college, or for short periods of time. But have you had to do it for long periods of time (months or years, not weeks)? Have you only been able to have food to eat thanks to $127 in food stamps each month (for 2 adults and a child) and a little help from family?

  • Karl (unverified)
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    I seem to remember from a previous sales tax discussion (not here, but prior to one of the votes) that it would take about 10% of the revenue generated by a sales tax to fund the new bureaucracy established to operate it. Does anyone know the source for this figure? Anyway bureaucracies ain't cheap, and once we got 'em, they're just about impossible to get rid of. So, with a sales tax, you'd be taxing the poor to provide servicies to the poor and taking a good chunk of that change away for the service of doing it.

  • (Show?)

    On the other hand, if you've actually got a model -- like another state -- where they've come up with a sales tax package that matches the progressivity of their (or our) income taxes, by all means bring it on. I could possibly support that.

    Three years or so ago, I did look through Governing's report on the states, and did see a few examples that looked interesting. Actually, what seemed interesting were components from several different states. I posted those on my now-defunct Oregon Blog. Unfortunately, without some effort, I don't recall the specifics.

    The cool thing about the 2003 report that you cited upthread was that it took into account tax fairness--a feature they downplayed in 2005's version. They will have another up next year, so perhaps we can revisit this conversation then--and let's hope they put fairness back into the formula.

  • (Show?)

    Great conversation! I think it has been pointed out here that Ben doesn't feel like the package he is working for is perfect, he is open-minded and willing to consider some of the great points brought up here. Real tax reform will take a real conversation with Oregon and, as this blog illustrates, people may be ready to talk.

    First, Ben is not married to the sales tax as opposed to the VAT or BAT, it's just that the sales is easiest to administer. Yes, a sales tax has been defeated nine times in Oregon, but I, for one, am glad we took a seventh vote on another controversial issue that finally passed in Oregon, women's suffrage. Plus, considering the change/ growth in population, it may be time to consider the issue again.

    I want to address Jenni's concern about low-income families and a sales tax. First, Ben's plan adds an earned income credit and renter relief, two vital ways to reduce the amount of taxes paid by low-income Oregonians. The plan also incldes reduction in property taxes for owner-occupied homes. Currently, we tax people under the federal poverty level at the same rate we tax middle-income citizens- 9%. This plan gives an income tax cut to everyone.

    Second, with stable revenue (and more of it) we can return to providing services that helped those families move from poverty into living wage jobs.

    Ben doesn't just talk about the problems, he works for solutions. That is why he is chief petitioner on the Family Health and Wellness Act initiative. If the fastest growing cause of personal bankruptcy is medical bills, providing affordable access to healthcare will really help low-to-middle income families. Just by the simple act of adding a .60 cigarette tax, we can cover every unisured Oregon child, put 50,000 of our most vulnerable back onto OHP, and provide subsidies for small employers to cover up to 100,000 of our working poor. This is just one change and we can cover 1/3 of our uninsured. With complete tax reform, we can provide access to affordable healthcare to every Oregoinian, stabilize adequate funding for our schools, and restore the cuts to vital services we were forced to make in the recession of 2002.

    Ben believes that Oregonians may be willing to vote for a sales tax if A) Every income-tax paying Oregonian gets a tax cut and B) They see what they are getting out of it. C) The rate is in the constitution so it can't be raised without a vote of the people.

    The other issue that has been brought up a lot is whether the sales tax guarantees stability. The answer is: More than our current structure. Even though California went through a recession to and had to cut their budget, it was only a small percentage of their overall budget.

    While Ben was co-chair, Oregon lost 22% of our already allocated general fund dollars. Ben says that just the way a household depends on a paycheck to cover it's bills, so does the state. It's not enough to know that it will be there, you need to budget on how much it will be. Our current structure is too volatile and depends too heavily on income taxes paid by hard-working Oregonians.

    Ben didn't come up with this plan in a vacuum, it was a group effort that included labor and business and special efforts were made to address regressivity- it happened during the '03 session and has been called Draft Plan A by those who worked on it. A bipartisan, bicameral group of legislators: Westlund/ Shrader/ Jenson/ Hass introduced it as SB 382 last session. It didn't even get a hearing becuase the parties were too worried the words sales tax might be uttered before an election year.

    A few good sources for tax information are linked to from our website

    Thanks again for the great discussion!

  • paul (unverified)
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    Karl,

    I don't know the source for that figure either, but it sounds suspiciously like a Rush Limbaugh made up one.

    I cannot conceive of how the revenue lost through cross border purchases from Idaho and Washington would not be utterly, totally, completely swamped by the sales tax revenue from Oregonians.

    Besides, do we really want our economic development model to be "sales tax haven for 2 miles in from the border"?

    Darrel, what you are asking for cannot be produced. You would have to find a state that at some point in the past did not have a sales tax, had a fiscal crisis, and then the crisis was fixed with the sales tax. Since 46 states have a sales tax, that will be a bit hard to come up with, won't it?

    It's about as unrealistic as using California's sales tax and it's unstable budget picture as evidence of the problems with a sales tax.

    At least to me, the numbers of bond ratings and fiscal rankings provided by Governing magazine are pretty convincing.

  • (Show?)

    I never said people wouldn't get a tax cut-- for those at the lower levels it'll mean only a decrease in their state income taxes since they already don't pay federal taxes.

    I see there is an increase to allow 25% of the earned income credit, as opposed to 5. However, this would apply to people at several income levels.

    Those making more than $5,000 per year (still well under federal poverty levels) are taxed at the same rate as those making a million. The only difference is that they're going to see an increase in the earned income credit. Of course that doesn't take into consideration that the credit is much, much less than the standard credits/deductions taken by those at higher income levels. It's only those under $5,000/year whose tax is calculated at a lower level.

    As I said before, when looking at how much state/federal income tax is saved, it was right at 1.9% for every one of the income levels listed on the table. So I used that same percentage for a family at $28,000.

    Both those at $28,000 and those at $35,000 end up paying more taxes under this plan, if they don't own a house. And the fact is few of the people at this level are going to own a house-- especially those under $30,000.

    And in searching through the PDF, the only relief I could find for renters was for those 58 years of age or older.

    None of this speaks to the fact the table shows that those at lower income levels pay a larger percentage of their income to sales tax than those at higher income levels (2.22% for someone making $35K, 1.48% for someone making $125K). That is a regressive tax. It also proves what I've been saying-- even when non-prepared foods, utilities, medicine, etc. are exempted, the poor still pay a greater percentage of their income in sales tax than those making more do.

  • activist kaza (unverified)
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    Comparing women's suffrage to a sales tax...now that's some creative "spin" on the part of the Westlund campaign! Props to Ms. Dycus for an angle I'd not yet come across on this subject in over 30 yrs. of living in Oregon. If she and their campaign can keep this up, it should make for a very entertaining (and perhaps even enlightening) fall campaign.

  • (Show?)

    Paul, I didn't say that California's problems were because of a sales tax. I said that they had problems despite a sales tax. There's a difference.

    As to the Governing ratings, sure, states that have regressive sales taxes have better bond ratings. Oregon had better bond ratings before the passage of Measure 5. I suspect that if we revamped the income tax structure so that the private/corporate split of the tax burden was shared more along the lines of Washington state, that might improve things as well. A discussion of a sales tax is not solely about whether enough revenue is coming into the coffers, it's also about whether you're penalizing low-income Oregonians in order to do so.

    Also, you're being very selective in your "remembering" of my requests. A couple were simply for an example of a state where the sales tax was the determining factor in stabilizing revenue.

    If the argument is that a sales tax is the path to stable revenue streams, you ought to be able to find a state with a stable revenue stream and show that its's because of the sales tax. If you can't, how do you know that your argument is correct? What empirical proof (as opposed to economic theory) do you have that a sales tax is going to stabilize revenue?

    Just saying "sales tax" over and over ("catapulting the propoganda" in the administration's parlance) isn't going to convince people. Saying it louder isn't going to convince people. Well, it might, but there are going to be plenty of people who are going to be asking you to provide facts to back up your claims. If sales tax proponents can't do that, then they dseserve to lose.

  • andrewkazasucks (unverified)
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    And here I thought I was done... Andrew Kaza Continues to Suck:

    Andrew Kaza is like Lon Mabon, no matter how many times Oregon laughs at him and his moronic attempt at election glory, or as Kaza likes to call it, "May Glory," he still comes back for more (Andrew would call it November Glory, but he's never made it past the primaries).

    I will give props where it is due, Andrew Kaza has got a big set on him. Less than two years after single-handedly pissing off the entire democratic voting population in the State of Oregon in his bid to unseat Democratic Congresswoman Darlene Hooley, he had the "testicular fortitude" to expect county commissioners to nominate him to a state legislative seat.

    His "spin" on his blog and on BlueOregon.com was that the commissioners were scared and intimidated into their choices and avoided a "real" debate on "qualified" candidates. This seems to be a common theme in his campaigns, but was is always lacking is why anyone would want HIM making decisions over anything in their lives.

    If he were to get elected to a position of authority, I, for one, would be up at night with worry. But I am not a man of just pontification, I have a solution.

    I am taking a collection up to buy him out. He seems to like money, so Ill kick in $100 and if you feel the same, lets pay him to leave the state, or at the very least, leave our ballot forever.

    (As for this discussion, if Andrew Kaza doesn't agree with your idea, you might think about copy-righting and marketing it, because its gonna be really popular VERY soon )

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