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OR: Proposed sales tax draws opposition from all sides

By   /   December 11, 2012  /   1 Comment

PAYING UP? Does a new sales tax for Oregon have a chance?

By Shelby Sebens | Northwest Watchdog

SALEM — State Sen. Ginny Burdick is quick to correct should someone refer to her legislation as a sales-tax bill.

She prefers “tax reform” and points to other changes to the state tax code contained in the proposal. But a sales tax by any other name …  is, well, a new tax on Oregonians.

Oregon has an income tax, but is one of five states without a sales tax, and opponents want to keep it that way.

The proposed legislation would create a sales tax, but only if voters agree to it — voters have rejected a sales tax nine times. But Burdick of Portland, state Sen. Mark Hass and state Rep. Tobias Read — all Democrats — are proposing a bill that attempts to shift the tax structure to broaden the tax base.

“Our tax system is broken,” Burdick said. “It’s unstable. Schools are in really bad shape.”

Proponents see this as a way to create a more stable tax structure to better support schools. But there are other options. The governor has proposed pension reforms expected to save $865 million, for example.

Still, schools are facing cuts and larger class sizes, plus an additional $300 million is being taken from the system in 2013 to help fund the state’s pension system, which carries at least a $16 billion unfunded liability. School districts and other state agencies will contribute 45 percent more in taxpayer money to the failed pension system in fiscal 2013-15.

The governor has asked lawmakers to consider pension reform bills in the next session, and Burdick supports such a move. But she also thinks it’s time to talk tax reform.

Her proposed legislation would add a 5 percent sales tax while cutting the income tax and property tax rates, netting nearly $2 billion in revenue, according to the Legislative Revenue Office and lawmakers proposing the bill. But activists on both sides of the political aisle aren’t buying it, saying it would be a tough sell for voters. Even if it passed the Legislature, the state constitution requires tax initiatives to go before the voters.

People on the progressive side of the political spectrum say any sales tax would be regressive and hurt low-income families, while more conservative activists don’t trust it as true reform and say it’s just another tax burden on Oregonians.

“It’s not tax reform it’s a giant tax hike,” said Jason Wiliams, executive director of the Taxpayers Association of Oregon, a conservative group that advocates for lower taxes and limited government. “If you look at our taxes, they’ve over taxed our income and they’ve over taxed our property and gasoline. There’s nowhere to go but start taxing every single product and service.”

The proposed legislation looks to reduce the income tax and offers an earned income tax credit.

“It clearly would be a big tax shift,” Chuck Sheketoff, executive director of the Oregon Center for Public Policy, a liberal budget and tax research organization, said. He called any sales tax a regressive tax because it unfairly burdens low-income people. “The wealthy would be the big winners. If you want to design a plan that primarily lines the pockets of the wealthiest Oregonians, this would be it.”

Sheketoff argues sales taxes are regressive because they are not based on ability to pay, and a reduction in the income tax benefits those who make more money.

She says her legislation makes considerations for low-income families by exempting essentials such as groceries and the state earned income tax credit, which would be expanded to 25 percent of the federal earned income tax credit. The current income tax rate starts at 5 percent for the first $3,050 earned and goes up to 9 percent for most income brackets, according to the Oregon Department of Revenue.

Steve Buckstein, senior policy analyst for the libertarian think tank Cascade Policy Institute, said anything short of eliminating the income tax in exchange for a sales tax would not fly with voters. He sat on a tax restructuring task force from 2007-09 under former Gov. Ted Kulongoski.

A pollster hired by the state found that voters could be receptive for a change to the tax structure, but only if one tax is eliminated for the other.

“People don’t’ believe that lowering the income tax rate and even locking it in the constitution would hold up,” he said.

Buckstein said he thinks a sales tax in place of an income tax would be less damaging, and that there are ways to keep it from being regressive and a burden to low-income families.

“That I think would be a worthwhile conversation,” he said.

Burdick knows her legislation has an uphill fight. Even Gov. John Kitzhaber, a Democrat, has said while he is for reform, the upcoming session isn’t the time to pursue it.

“I’m not looking at the outcome right now,” Burdick said. “I’m looking at trying to get this out there in front of Oregonians. When the time is right is a decision that will have to be made down the road.”

Contact Shelby Sebens at Shelby@NorthwestWatchdog.org, or follow her on Twitter @ShelbySebens. For more Northwest Watchdog updates, visit NWWatchdog on Facebook and Twitter.

— Edited by John Trump at jtrump@watchdog.org

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  • http://twitter.com/greatjoy greatjoy

    We are silently taxed everywhere in our country. Today I heard government people testify how wonderful certain government schools are. We know that money allocated for schools gets diverted all the time. Why would this time be different? Government schools are less effective at teaching than all other forms of education–private, homeschool, charter. The union prevents solving what actually needs solving. Sending the schools back into parents’ hands would be an excellent beginning. Then I might agree to put more money into public schools. Until then, it’s a black hole.