Thanks so much for this great post.

What would be the legislative avenue for making this change, and what are its chances? Is there a group fighting for this? In short--can you or another commenter put this in political context for this neophyte? I think this is a great idea but want to know where to focus my grassroots energies.

I've seen the light on tax brackets; but still want to push back a bit on the tax break issue. Part of what I object to is the double standard wherein other forms of spending are subject to review, "belt tightening," etc. but none of the tax breaks are ever reviewed let alone sunsetted.

What's wrong with checking to make sure there is a demonstrated benefit to the tax breaks and not just another notch in a lobbyist's belt?

Tax breaks have specific social and economic purposes Many do; but does this apply to the tax breaks on vacation homes and pleasure boats?

After years of pondering the tax code and its impacts on Oregon I have really come to believe that the only solution for our situation is to adopt a sales tax and to simultaneously reduce the income and property taxes (in a relatively revenue-neutral manner). I travel a lot - I've been to 8 states this year and did a fair bit of shopping in each - and the sales tax is not a terribly painful one for me to pay. If food, housing, gas, utilities, and maybe even diapers were exempt, then you could automatically make the tax progressive. Yes, Oregon would lose some business it currently wins from neighboring states from people avoiding their own local sales taxes, but the lower property taxes could make us more appealing to businesses and bring in jobs, we could raise more revenue from tourists and business travelers, and we wouldn't have so much angst about the way the income tax and property tax harm the poor and elderly.

The only catch is I can't think of any way to pass it - you can't do it through initiative - each change to the Constitution (and there would be many of them) would require a separate vote, and each issue would have to pass for the whole plan to work. As a second option, the Legislature could put a constitutional amendment together and if they were able to muster a 2/3 majority vote on it they could refer the multi-subject bill to the voters to amend the constitution, but it would be a Herculean task to convince the public of the benefits of the plan.

Thanks very much for your detailed response Jenson--I definitely want to learn more (the tax code is way beyond my comfort zone) and will get on your email list.

To me it boils down to, the Legislature has an obligation to look at these expenditures. It's not, "let's cut all tax breaks" but "let's LOOK at them"--and put them in the mix with all other forms of expenditures so that we can prioritize.

R's may push back that the money is "theirs" and that tax breaks aren't spending--but if we stay on the offense and frame it as a choice between essential services (such as a full school year) and dubious-tax-break X for elite group Y (Chuck S. gives an excellent example), then I think it's a pretty clear choice and would be to most reasonable-minded voters.

Jenson says, “We need to stop analyzing what the problem is and formulate a successful initiative.” Your proposal for making our state’s supposedly progressive income tax actually progressive is great…as is seeing something in writing that is an actual proposal.

Last year I was frankly surprised at the progressive tax fix the legislature passed, it shows they will do it. Sure it was overturned, but that was a first time up for that idea, and it was a band-aid rather than a fix as Jenson proposes.

If we put forward a progressive income tax plan such as Jenson's that really did something good at the bottom end, as he suggests in lowering the rate there, I think it could sell, whereas the sales tax just doesn’t sell in Oregon. The point that Jenson makes that taking state income tax from really low income folks really is a form of sales tax was a new thought to me, and a great sales speech for the change.

The list of current tax credits for disabled, etc is “nice politics” but they are tax purchases, and need to be looked at as that. I prefer the simplicity of changing the formula to the complexity of these tax credits. And frankly, fixing the rate structure would allow us to embrace getting rid of some of these tax credits for poorer folks, right along with getting rid of some for wealthier ones, for instance the home mortgage/property tax one.

The fact is that a limit on home mortgage interest and property tax is a no brainer, and very easy to sell --except to realtors and developers—who do have firm footing in Salem. But it is an issue of fairness. Jenson speaks about phase outs and the AMT as part of what fixes the home mortgage deal, and keeps the fix from actually generating much new income, but part of what we struggle with in the impression of fairness, not just the actuality. As I recall, there is one wonderful liberal Oregon family that had, and maybe still has, five homes in Oregon . . . and all the property tax and mortgage interest would be deductible from income tax--meanwhile we tax a family with virtually no assets…that isn’t fair, and if people are going to come to embrace taxes as our dues and duty, then we need to look for ways to make them both fair and easy to understand. Personally, I prefer the idea of an indexed top $ limit, to a one home rule. This might allow some folks two modest homes while catching those with a mansion on Skyline. Obviously looking at what other states/countries are doing would be good before we craft that change.

I'm really concerned that the Bush administration, under the tutelage of the Club for Growth and other anti-tax forces on the Right, will attempt to impose a federal sales tax, which would be a flat tax. The idea is high on their agenda and Bush has already expressed interest in it. Such a tax would be in addition to state sales taxes. I hope other people have been following this issue, too.

I hope the left resists the urge to play on people's irrational fear of a sales tax to convince them to make the income tax more progressive. It will only postpone indefinately any possibility of real tax reform that will bring stability and fairness to our system. Sales taxes hit those who are doing a lot of shopping - those with more disposable income. You want to stop taxing the poor, then end the Oregon lottery.

The problem with a national sales tax is you can bet there won't be any reduction in any of the other taxes - it will just be a new tax, allowing further growth of government. I'm personally not really liking the way the federal government is growing already.

I think the Oregon Legislature should try a different approach. Rather than simply introducing a .5% increase on the highest income earners, they should at time offer a tax decrease to those at the lower levers. I know that may result in the wingnuts yelling 'class warfare' but I think this state is blue enough to stand up to the righties.

We need relief for those at the bottom, and increase it on those who can most afford it. I mean, when you've got people scrounging to find $100 to pay the rest of their taxes. It's not right. High income earners wouldn't be scrounging for a few extra thousand dollars because they have it.

I agree with Jody's affirmation of Jenson's new approach. "The point that Jenson makes that taking state income tax from really low income folks really is a form of sales tax was a new thought to me, and a great sales speech for the change." This is thinking outside the box at its best, Jenson, and I can appreciate your fine articulation of your point of view. Sign me up, put me on your list - and thank you for putting it in writing!

I'm sorry but I don't get how taxing the income of low-income earners is really a sales tax, or even what the significance of that statement is. It seems to me that it's an attempt to capitalize on people's reaction to the sales tax and get them to feel the same way about taxing the poor. There is no relationship between an income tax and a sales tax - one taxes what you earn, and the other what you spend. So what am I missing here?

Jenson, Good luck in your efforts. I hope you make headway. A few comments:

• I don't buy your argument that state taxes need to rise because the federal tax rate has lowered. First, are you arguing that the federal government has cut back on services in order to "pay for" the tax cut? That just isn't true -- federal spending has increased since Bush came into office (and not just defense spending). Second, you presume that people will somehow see state government as a replacement for federal. I don't think they do.
• You argue that the voters were not sufficiently informed in 2002, and this is why the referendum failed. This comes off as a bit presumptious. The Oregon voters have turned down tax increase after tax increase. Might it not also be true that the voters knew exactly what they were doing?
  
• People know what a sales tax is: you pay an extra percentage at the register. Saying a non-suffiently progressive (it is progressive, just not progressive enough for your taste) income tax is tantamount to a sales tax is a complicated argument.

I think you have to work harder at making a pitch that is nearly revenue neutral (under the current climate, nothing else will fly).

I think you have to make a pitch that has populist appeal (that's why Ruth's second home deduction, even if complex for accountants [who by the way no one cares about, more complexity=more money for them]) is such a good idea.

I think Jenson's #1 argument is what first occurred to me - that the federal government has shifted a lot of its funding responsibilities to the states, and has also imposed a number of unfunded mandates on the states. These are creating problems. I would like the see the Legislature work to make a clear case to the public on the budget issue - clear enough that we know where the money is going and feel secure that the budget isn't lined with "fat". In the past it has seemed legislators simply went about their business but did not share with the public the reasons why so many who ran on fiscal responsibility were ultimately willing to increase taxes. As far as the public could tell, legislators were simply duped by powerful, persuasive lobbyists or coerced to vote the party line. Media like the Oregonian owe it to us all to provide intelligent but easy to grasp explanations of what is happening to our state budget. When spending is increasing faster than population and inflation factors, I think the people deserve a clear explanation. Why can't we get one? Why does it always turn into Republican versus Democrat?

Just to throw in the two cents of someone not well versed in tax law or reform, I'd like to respond to the Prof's comments. 1)While the Federal Government may have increased spending in areas other than defense in the last few years, increased spending does not automatically equal increased services. In addition, I seriously doubt that these "increases" have been made in areas that would benefit the average taxpayer. This appears to be a moot point in light of the recent claim by Bush that he will seek a budget which will effectively cut funding from every federal budget item which is not defense/military related. I believe you are right, the average taxpayer does not think of state services vs. federal services, they think of services period. If the federal govenment continues to cut spending on domestic initiatives and create unfunded mandates for state governments, state funds be forced to take up this slack. If we want Oregon to be a truly progressive state we should look at the mistakes of our current federal administration as an opportunity to increase locally prioritized services to our citizens. 2)I think it has been fairly well established that the average voter is grossly undereducated about the measures that they vote on. While I would join you in critisizing anyone who argues that voters do not have the capacity to understand ballot measures I would argue that many of them do not make use of this capacity. I think that more of our informed and engaged citizens should lament this state of affairs rather than continue on with the attitude that the voter knows best. That said I belive, as it seems Jenson does, that if people were better informed about the benefits they personally enjoy as a result of their taxes (especially those in rural areas who see an inordinate return on their tax dollar) they would be more willing to support tax "increases". The problem lies in framing a fairly complex arguement in terms that will get through to the average "no new taxes" voter. I agree that a message with a populist appeal is needed, one that is strong enough to reverse this shallowly selfish, uninformed trend in the Oregon electorate.

A sales tax falls heavily on folks who are living off their savings or investments. So the elderly end up paying taxes on their purchases, after having paid taxes on their income. (And if you think a national sales tax might be desirable, take a look at this study of the distributional effects, on a state by state basis, by income quintile: The Effects of Replacing Most Federal Taxes with a National Sales Tax: A State-by-State Distributional Analysis, found at http://www.itepnet.org/sale0904.pdf

But both sales taxes and income taxes have undesirable effects on the economy. Sales taxes depress sales, reduce production, reduce jobs. Income taxes create a drag. Taxes on buildngs discourage construction and maintenance. Not to mention the fact that taking a portion of one's labor is fundamentally unfair -- some would argue akin to slavery.

There is an alternative, a tax whose effects are actually desirable. But one has to think outside the tax box in which we allow ourselves to be imprisoned.

Instead of depressing sales, or penalizing work or penalizing development and maintenance, we should be taxing that which is not manmade, not something that the individual can take credit for. The best example of that is land value. Chuck referred to high end properties with $600,000 mortgages. Yes, some of the difference between a middle-America home and a high end property is in the newness and luxuriousness of the structure and its contents -- but most of the difference is in the location, and no builder and no homeowner and no office tower owner and no shopping center owner can honestly claim to have created that value. The community creates that value, and the community is entitled to collect it as our common treasure. Much fairer than collecting a portion of someone's wages, or penalizing purchases of products.

It isn't just the residents of our large cities who make those cities valuable -- those who can't afford to live there but commute to jobs there also drive the rents upward. Why on earth should a family, or a real estate investment trust or a corporation continue to be permitted to collect all that rent for themselves? The land portion of it belongs to all of us. Use it to finance the schools all over the state, and the other services which make Oregon a desirable place to live.

Don't tax the tourists and business travelers. You don't want to discourage them from coming. Instead, tax the land under the well-located hotels, and their neighborhoods. It will lead to more hotels being built. (Tax the structures, and you discourage that construction.)

When you shift taxes over to land values, you produce a lot of benefits. Compact cities, less sprawl, healthy downtowns, better wages, jobs chasing workers instead of workers chasing jobs. Which of these do we find undesirable?

Chuck says ""I really don't think Oregonians want to subsidize someone who can afford a mortgage in the $600,000 to $1 million range."""

Hundreds of luxury condos in that price are already subsidized in Portland with huge property tax abatements.

Their property taxes have been reduced to a few hundred dollars while the rest are expected to pick up the slack to fund basic services.