Friday, February 29, 2008

The Final Verdict: No Sales Tax in Oregon

Well, the final poll results are in and reflect the general split all along: A small majority prefer not to introduce a sales tax. I suspect that it has mostly to do with concerns of regressivity and the distrust of politicians to do enough to counter it. I concede that it would be a tough political fight, but I am also quite concerned about being such an outlier on income taxes. Still my support for the sales tax waned the more I got into the morass of the data. I would support a tax package that introduced the sales tax and reduced the income tax but also made it progressive. I think, however, the ability to deduct the income tax on federal returns is a pretty big counterargument, so I would not mind a relatively high income tax along with a small sales tax.

But my readers have spoken and I am beholden to them. I have tried my best to educate (while still keeping my job - meaning having to do the tax research in my spare time) and after delivering what I hope is a fair reading of the evidence and arguments, my readers have filed to find convincing the arguments for the tax. Thus I consider the case closed. If readers of The Oregon Economics Blog don't think it is good for Oregon, than it is not.

Thanks to all who participated in the poll.


jessibeaucoup said...

Why do you have concerns about being an outlier? As an Oregonian, I'm proud of our lack of sales tax and I think we are progressive (which I think is good) in this way.

Patrick Emerson said...

I am concerned about the disincentive to locate and invest in Oregon and the added expense of wages for Oregon employers stemming from having to recruit in a national job market. Both effects are documented - though the magnitude of the first effect is debatable.

I will say that these are not things that keep me up at night, so no sales taxes does not concern me that much.

Jeff Alworth said...

Now that the sales tax question has been explored, I would be interested in your thoughts about stable revenue streams vis a vis our current structure, with property taxes and income taxes carrying the burden. If we eliminate sales tax, can we make our two-legged stool less wobbly?

Fred Thompson said...

Patrick's point is that adding a sales tax wouldn't make the state's revenue stream materially less wobbly (more stable). The evidence shows that actual sales taxes are about as volatile as actual personal income taxes. A consumption tax as progressive as Oregon's personal income tax would probably be more volatile. It is true that reliance on multiple tax sources produces a portfolio effect. However, the covariance between the consumption tax base and the income tax base is >80 percent, so the portfolio effect would be small (not material).

Fixing the spending wobble by monkeying with taxes is like scratching an itch in one's right ear with one's left hand. The thing to do is to fix the problem directly.

chris farrell said...

a sales tax might be okay if it excludes food and utilities, things that you have to have to live, basically. That way, it won't be as non-progressive as a sales tax typically is.
It is well known that the poor spend a greater percentage of their income on food.

It's neat to see an economics blog in Corvallis. My dad taught economics at OSU from 1968-2004 or so (John Farrell) and I grew up listening to economic concepts and probably understand them better than most, despite not taking a single economics class.

I see a lot of your views correspond to mine.

Patrick Emerson said...

Hi Chris,

Thanks for the kind words. I know your father, though not well as I arrived at OSU a couple of years after your father's retirement. This is something I regret as he is much loved by everyone at the department.