The Great Tax Debate

A bowl full of cherries from Orchard View Farms in the Columbia Gorge. / Photo by Andrea Johnson

Oregon is one of five states that has no sales tax, thus making this topic a biennial favorite when the state budget is in critical condition. State services typically ride the boom/bust cycle with the two-legged property and income tax. Oregon Democrats and Republicans alike have argued for a more stable tax base to fund our public school system, which is often the biggest loser. A sales tax may never happen in this state, but the debate continues to shape this debate for 1859.

Mark Thoma

Mark Thoma is a University of Oregon economics professor

Oregon should consider adding a sales tax to its mix of revenue sources.

First, the cost of state services is expected to increase in the future, so simply keeping government at its present size will require new sources of revenue. A sales tax is one possibility.

Second, to the extent that adding a sales tax broadens the tax base, the average tax rate required to raise a given amount of revenue will be lower. This benefits existing taxpayers no matter what size government we have.

Third, a big problem in Oregon is the variation in revenues as state conditions change, and, though the evidence on this is mixed, a state sales tax may provide a more stable revenue source than income and property taxes.

Fourth, the revenue instability problem can be solved with an adequately sized rainy day fund, but the politics of the state’s “kicker law” have not allowed this to happen. Adding a state sales tax is an opportunity to break this political logjam and establish the rainy day fund that we need.

Fifth, taxing consumption encourages saving while taxing income discourages work, so replacing income taxes with a sales tax increases the incentive to work and save, both of which encourage economic growth.

Sixth, visitors use state resources while they are here, and other states don’t hesitate to take our money when we visit them, so why not impose a sales tax and return the favor?

Seventh, income is taxed differently depending upon the source (e.g. capital gains are taxed less than labor income) and that distorts incentives. A sales tax overcomes this problem.

Finally, the biggest problem with a sales tax is that it is regressive. However, this can be addressed by exempting necessities, and by adjusting other taxes and transfers to compensate.

Jay Kushner

Jay Kushner is chairman of the Multnomah County Republicans

The people of Oregon have voted no on a sales tax nine times through the ballot. Still, politicians continue to promote a state sales tax. There is always a need to be filled somewhere, and a gaggle of economists on the state payroll will catalog them with dismal predictions of disaster. But the real disaster is the sales tax itself.

Having no sales tax is Oregon’s comparative advantage in competing with other states. Oregon is one of only five states that does not have a sales tax. The retail benefits are obvious.

The comparative advantage helps us in winning manufacturing plants and jobs. With the cost of building a plant in Oregon 8 percent less than in neighboring states, a billion-dollar semi-conductor factory has an $80 million savings. No sales tax attracts the plant and the jobs.

Sales tax is regressive. Poor people, wage earners, fixed income citizens pay a larger percentage of their money on sales tax than the wealthy.

I have always been puzzled that Democratic politicians are the chief advocates of a sales tax which hurts the “most vulnerable” people they claim to protect.

A sales tax costs you more for everything. It’s not just the groceries and the cup of coffee. Cars cost more, house renovations cost more, energy costs more and entertainment costs more. Consequently, the overall state GDP declines, and our people live less well.

A sales tax always goes up. It may start as 1 or 2 percent, but once established, it can be raised promiscuously by legislators.

A sales tax has a local disadvantage. Under most sales tax regimes, cities and counties get a portion of the revenue. Cities compete ferociously to attract shopping centers and big box retail stores because of the sales tax revenue they bring. This is a disaster for small business and for urban planning. 

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