Wednesday, December 19, 2007

Sales Tax Poll

As I prepare my magnum opus on sales taxes, it is time for another poll. I would like to know if you think Oregon should have one. My opinion is already known, but I would like to know yours - my faithful three readers. Winter quarter is on its way, so I am going to keep the poll open for a few weeks to allow the fresh and unencumbered minds of OSU undergrads to weigh in as well.

Vote over there on the right, and comment here.


Jeff Alworth said...

I would really like a third category: wholesale reform that creates stable, progressive revenue streams but does not depend on a sales tax. That's my preference.

Patrick Emerson said...

Ah, yes, I thought about these types of qualifications. There is also the right leaning - no new taxes whatever the form. But I just want to think about sales taxes in isolation for a short while, and discuss the economics of sales taxes in general, before coming back to a discussion of whether they are a good idea for Oregon given its current situation.

What I would like to know basically is if you think sales taxes are a good revenue source - full stop. Some dislike them because they can be regressive, some think they put an unfair burden on small business and some think they are confusing and complicated for consumers to deal with. I like them because of the incentive they provide to save, the way they can be made easily progressive, the idea that to some limited extent thay are voluntary and because they create a reliable and fairly smooth revenue stream.

Stevelle said...

VAT, yes. Sales Tax, no.

The claim that they can be made "easily" progressive seems to defy logic and experience.

Unless you limit your sales tax to items commonly targeted by sin taxes and luxury taxes, it is not voluntary.

Of course any sales tax which is truly voluntary is going to be subject to instability as targeted goods are trimmed from consumers' budgets during times of crisis--so what is attractive about a sales tax in that case?

It seems to me that there is a causual link between stability and regressiveness.

Someone throw me a rope here and show me why I'm wrong with a concrete example, please.

Patrick Emerson said...

A sales tax can be made progressive by exempting items that make up a large portion of low income expenditures: groceries, clothing and medicine along with an income tax credit for low income households.

Is less cyclical because generally people understand that income is subject to fluctuations and thus tend to moderate spending in good income periods and spend reserves in bad periods. I don't think this is because of any recessiveness.

Voluntary only in that we decide, for example, whether to buy a new TV or live with the old one. So it is voluntary only in the sense that discretionary spending is just that - discretionary.

But we are still on theoretical ground here, I am currently looking at the empirical research on sales taxes and shall try and provide concrete data (whatever it may be – I promise not to cherry pick) on these issues.

Stevelle said...

I'm looking forward to seeing what you come up with.

Unknown said...

One arguement that I frequently hear about adding a sales tax here in Oregon is that, once it's added, we'll never get rid of it and it'll just go up and up and up.

BTB, why do we need to provide incentives to save? Isn't a comfortable retirement a good enough reason? Why should tax code be designed to provide additional incentives? If people aren't saving now, how is enacting a sales tax going to make them?

darrelplant said...

A sales tax can be made progressive by exempting items that make up a large portion of low income expenditures: groceries, clothing and medicine along with an income tax credit for low income households.

If you do that, then you lose the stability that is most of the argument for a sales tax. By exempting the things people need to buy from the sales tax, you make it more dependent on discretionary spending, which is affected by the economy in the same manner as the income taxes are.

This isn't exactly new ground.

In the 1980s and 1990s, Levy reports, the growth in taxable sales was the most volatile of the three major sources of government revenue. In both decades, taxable sales had the highest and lowest annual growth rates.

In the 1980s, sales growth swung from nearly 0 percent in 1982 to more than 14 percent two years later, then dropped to 4 percent again by 1986. In the 1990s, taxable sales actually declined by 4 percent early in the decade before rising steadily and peaking at a 12 percent annual growth rate in 2000. After that the growth rate plummeted again to zero. There's your true rollercoaster.

Overall, the sales tax base is also the slowest growing, rising at less than the rate of population growth and inflation since 1980. One reason is that more and more sales are falling outside the tax base as commerce shifts to the Internet, and services, which are untaxed, become a more significant part of the economy.

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