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MailTribune.com
  • One more time

    Tax reform has a dismal history in Oregon, but it needs to happen
  • Gov. John Kitzhaber came in for some well-deserved praise last week when he succeeded in getting the Legislature to agree to a package of bills that could take a big bite out of the state's unfunded pension liability. So what does he do for an encore?
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  • Gov. John Kitzhaber came in for some well-deserved praise last week when he succeeded in getting the Legislature to agree to a package of bills that could take a big bite out of the state's unfunded pension liability. So what does he do for an encore?
    You would be forgiven if you didn't immediately think of sweeping tax reform, but that's what the governor has in mind. And in this state, tax reform inevitably means invoking the "S" word: sales tax.
    Anyone hyperventilating or running for the computer to fire off an email flame should take a deep breath.
    Kitzhaber, wisely, hasn't actually uttered the dreaded term yet. And any effort to achieve a real tax overhaul will be lengthy, so there's plenty of time to weigh in.
    But make no mistake: A sales tax is bound to be part of that discussion, for one simple reason. That's where the money is.
    No other tax would generate enough dollars to reduce the income tax rate and significantly shrink the percentage of state money the income tax provides to Oregon.
    Oregon's quirky approach to funding government has long caused head-scratching in other states, all of which have a more balanced revenue system.
    Oregon is not the only state without a sales tax — that distinction is shared with four other states. But those states all have other income sources, some not available here, that help balance their reliance on the personal income tax. Resource-rich Montana and Alaska, for instance, get a large percentage of their revenue from taxes on oil and mining companies.
    Oregon relies on the income tax for 67.7 percent of its revenue. The only other state that relies more heavily on a single source is Alaska, with its oil tax.
    The problem with the income tax, as we and many others have explained many times, is that it is volatile: the state is rolling in money when times are good and most residents are employed, and scraping for pennies when the economy tanks and workers are laid off.
    Socking money away when times are good to tide the state over when things go south helps some, but Oregon voters haven't cooperated in that effort either. They repeatedly voted to have money returned to them when tax collections exceed projections by 2 percent or more, tying the hands of state budget-writers. The state's unique "kicker" law thus prevents lawmakers from doing the responsible thing and banking that money even if they wanted to.
    Of course, part of the impetus for the kicker was that the public didn't trust legislators to act responsibly.
    So now the governor has begun meeting with interested parties — he hasn't identified them, but business and labor groups would have to be on board for any proposal to have a chance.
    It's worth noting that business interests have indicated they could support a limited sales tax if it meant easing the income tax bite. One of the key elements of last week's special session deal was a reduction in the rate paid by small business owners whose profits are taxed on their personal return.
    Labor groups and Democrats object that the sales tax hits hardest on low-income residents who spend a larger portion of their income on necessities than the wealthy. But that regressive nature can be limited by exempting such things as food and medicine and by keeping the rate low.
    One significant advantage is that the sales tax would collect money from nonresidents who vacation here or travel through — something the current system does not do.
    Many have talked tax reform over the years in Oregon, and many previous attempts an overhaul have failed. But nothing will be gained without trying again.
    Let the discussion begin.
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