I’ve been an admirer of Dennis’s work and have corresponded briefly with him over the past couple of years. His work on the book has taken him away from regular blog posting, but his year-end post is kind enough to mention lowly me in some relatively illustrious company.
He’d better finish that thing. I’ve pre-ordered my copy.
Nothing the next year needs more than an anniversary present of a bronze statue of the bridegroom Ganesh, Remover of Obstacles, patron of letters and learning, and the latest addition to our little object pantheon on top of the cabinet in the living room.
Then again, his arrival today wasn’t exactly presaged by the best omens, Hindu-wise.
Since the Oregonian already published an op-ed from Charles Sheketoff rebutting the pro-sales tax piece they ran last week, they’re unlikely to run my own, especially considering that I don’t run anything with a name like the Oregon Center for Public Policy (or anything, really). But write something I did.
Sales tax proponent Rep. Scott Bruun says that “If you believe that taxes affect behavior … it’s easy to see that Oregon’s tax structure stifles incentives for work and investment.” It’s a belief that he doesn’t back up with any proof.
He bases his argument in favor of a tax reform which would add a sales tax using several standard assertions.
A sales tax would flatten “the peaks and valleys” of “roller-coaster” income tax revenue.
A sales tax is paid by choice, unlike an income tax, and is “inherently better”.
A sales tax would bring in new revenue from tourists
A sales tax would bring in money from the “underground economy”.
The last two are perhaps the most flimsy of the Representative’s assertions. If a tourist has $1,000 to spend in Oregon on a trip, Rep. Bruun would have you think they’re going to spend an extra $50, rather than $952 + $48 (5%) in taxes. And what about the fact that half of Oregon tourists are from Oregon? According to a Longwoods International report commissioned by the state, 51% of overnight marketable trips made to Oregon in 2004 were by Oregonians. That doesn’t mean the 7.9 billion tourism dollars that could be affected by sales taxes are halved, but it does put a dent in the something-for-nothing idea of out-of-state dollars.
As for the “underground economy”, any time money comes into the legitimate marketplace, it’s already subject to business income taxes. A sales tax exempts food, but if an under-the-table worker buys beer or cigarettes, they’re paying excise taxes and the business owner gets taxed on income.
The idea that a sales tax is paid by choice and is therefore better is simply bizarre. You no more “choose” to pay a sales tax on a pair of pants — something it’s rather difficult to walk around town without — than you “choose” to have a job and pay income taxes so that you can buy the pants. A sales tax is inherently unstable unless it taxes items people need to buy.
Which brings me to my final point and Rep. Bruun’s first.
For years, sales tax advocates have claimed that the sales tax is more stable than the income tax, and that it would therefor provide a stable “third leg” to the tax table. California has that third leg, but two decades of data show that “California’s income tax base is, surprisingly, not the most volatile of the three major sources of government income. It is at least as stable as property assessments and far more sedate than taxable sales.”
Washington, on the other hand, has no income tax and relies heavily on sales and use taxes. What does it have to say about its own system when it compared the sales tax to property taxes and other revenue streams: “Sales and use tax is the most volatile revenue source.” The same study showed that households with incomes under $20,000 paid three times the percentage of their income in sales taxes as households in the range above $130,000.
So color me unconvinced. A sales tax would seem to replace part of a slightly regressive tax system with money raised in a more regressive system that isn’t really any more stable than the income tax. It would once again shift part of the tax burden from large businesses and upper-income earners to small businesses and medium and low-income households, in an attempt to give “incentives” for more upper-income people to move here and live off the largesse of the rest of Oregon.
Remind me why we were supposed to be in favor of this again?
After caving in to the White House on the Defense appropriations bill, and all of the claims that they needed to do it without any restrictions because Bush would starve the troops in Iraq or shut down the Pentagon without his $70 billion, now this:
Bush to Veto Pentagon Funds Over Iraq Provision
By DAVID STOUT
Published: December 28, 2007
WASHINGTON — President Bush will veto a huge Defense Department bill because of concerns by the Iraqi government that Iraqi assets in American banks could be vulnerable to claims from victims of Saddam Hussein, the Texas White House said Friday.
The announcement of the presidents intentions caught Democratic leaders off guard. the Senate majority leader, Harry Reid of Nevada, and House Speaker Nancy Pelosi of California quickly issued a statement complaining that they had been blindsided by the news from Mr. Bushs ranch in Crawford, Tex.
Charles Sheketoff of the Oregon Center for Public Policy — like state Rep. Scott Bruun, a member of the state’s Revenue Restructuring Task Force — responds to Bruun’s op-ed piece last week with his own:
Bringing stability to our tax structure
Friday, December 28, 2007
As of November, nearly half the states in the nation were facing budget shortfalls, service cuts or tax increases. But not Oregon. So if Oregon’s tax system is the worst in the nation, as a commentary last week by state Rep. Scott Bruun contends (“Changing America’s worst tax structure,” Dec. 18), why are we outshining nearly half the country?
We suffer from an economy for the few. Bruun’s proposals would make Oregon’s economy even more lopsided. His income tax scheme would heavily benefit the wealthiest. Given that from 2002 to 2005, nearly all (97 percent) of Oregon income gains went to the richest 1 percent — households with annual incomes exceeding about $360,000 and averaging about $862,000 — I can’t fathom the logic in exacerbating Oregon’s income inequality by granting a 50 percent tax cut.
Bruun correctly notes the instability in Oregon’s tax system. But he makes it seem as if there’s no way to add stability without a major overhaul and without making the system less fair. That’s wrong. We just have to save more in our reserves during good economic times to have stability during a downturn.
It’s been almost two months since the Writers Guild of America went on strike, and in that time the primary source of criticism of the presidential candidates — late night shows like CBS’s The Late Show with David Letterman, NBC’s The Tonight Show with Jay Leno, and Comedy Central’s The Daily Show with Jon Stewart and The Colbert Report — have been in reruns. Sure, the criticism is largely superficial, but then the criticism by “real” TV news outlets isn’t particularly deep. And the fact that there hasn’t been an agreement reached is all to the good for people interested in maintaining the status quo.
Even without the widely-seen but mostly blunt ribbing of Leno or the stiletto-punch of a Colbert gag aimed at a much smaller audience, the fortunes of the anointed in both the Republican and Democratic races have been mercurial. Mike Huckabee has been coming out of nowhere (can’t we just say no more Arkansas governors for president for a while?) and even Zombie John McCain’s showing signs of life as he reaches for the brains of Mitt Romney and Rudy Giuliani. A couple of months ago Hillary Clinton was viewed by many as unstoppable, but Barack Obama and John Edwards are still fighting her for turf. The whole battle’s going down without the snarky comments of the late night talk shows, though.
But then, if you had a vested interest in how things were going to come out in the 2008 elections, and you had a way to, you know, keep a sort of a throttle on the process to at least try to keep things under some semblance of control, what would you do? Sure, it might cost you some big-time money, but what if all of your competitors would be in the same boat?
But that’s left nearly two months of some of the craziest material from the primary campaigns untouched by late-night shows in the run-up to the 3 January Iowa caucuses — the night after the broadcast shows return [Letterman and the WGA reached an agreement 28 December] — and the New Hampshire primary on 8 January — the night after Stewart and Colbert are back. If the strike continues for another month, the huge blocks of delegates at stake in the “Super Tuesday” primaries on 5 February will de be dealt out without the guiding hand of comedy writers.
That may seem like no big loss to many people, but we’re living in a world where our fellow voters took someone like George W. Bush as a serious candidate, even with people pointing out he was a buffoon. Sure, I don’t agree with all of their politics, and sometimes they simply propogate stupid jokes (Letterman, for one, did Monica Lewinsky/Bill Clinton gags a couple times a week until at least last year). I, for one, worry what could happen without a little of the funhouse mirror late night shows bring into the house of politics, and I wonder if someone might have their hand on the lid in an attempt to keep things from boiling over in a way they might not prefer.
So peruse Swift’s “selections”, and while you’re at it travel back to the days of cellphone-videoed hangings and check out my featured economics piece: “The Invisible Hand of Saddam Hussein”. It’s good, if I do say so myself, and apparently I did, because that’s how Swift’s list was created.
Back when Ben Westlund was pushing a sales tax during his campaign for governor, his campaign sent me a copy of some material they’d developed from a Legislative Revenue Office simulation of the effects of a sales tax in Oregon. The first page brief describing SB382 included this:
The 5% consumption tax Westlund proposed was anticipated to bring in $6 billion of revenue every two years. That would require an annual taxable consumption expenditure of $60 billion. Washington’s sales and use tax gets about half of its income from businesses, so make that $30 billion in personal spending on taxable goods and services.
A couple of things about that. One of the touchstones of the sales tax proponents is that it would garner a huge amount of money from the tourist industry. According to the Oregon Tourism Commission, the tourist industry does about $8 billion of business. According to a state study, more than half of the overnight stays in 2004, however, were from Oregonians travelling in-state. Even if out-of-state travellers spend more than residents when they’re here, the consumption tax on the $5 or $6 billion they spend is just a portion of the $25 billion of the sales tax base that would need to be paid by residents. (I’m going to be generous to the opposition and take all of it out of the personal spending side, although about 20% of travel is business-related and would properly be accounted for in the half of the sales tax related to business. What’s a billion between friends?)
Then there’s the item that tends to get skipped over in most of the talk about various sales tax proposals: “Retailer Compensation Rate @ 1.5% of Gross Collections”. $45 million in payments to retailers just to collect the tax. That’s half the annual funds allocated for the Oregon Department of Revenue in the Governor’s 2007-09 budget ($184 million for the biennium).
Finally, I have to ask, where proponents think $25 billion of annual spending by Oregonians is going to come from. The 2005 Oregon Department of Revenue tax data referenced in my previous post on this topic shows that the sum of adjusted gross incomes for all Oregon returns that year was $83 billion. To make their portion of $3 billion in annual sales tax revenue pencil in (by purchasing $25 billion), Oregonians across the board would have to spend 30% of their incomes on taxable items in the state of Oregon.
If you exclude the 10% of Oregonians with incomes over $100,000/year, the adjusted gross income of the other 90% didn’t even break $50 billion in 2005.
This chart is just a quick (relatively) dip in the water with some data analysis. The wedges in the chart represent the proportion of personal income tax returns filed in 2005 in Oregon, grouped by income. The height of each slice shows the net total amount of personal income tax that group paid. Roll your mouse over the wedges to see the legend.
In the chart and table, you can see the number of returns filed for the year, as well as the sum of the adjusted gross income (AGI) reported and the net tax paid.
The largest cohort by far in this chart is filers reporting under $20,000 in income. That includes teenagers, retirees, part-time workers, and about 20,000 returns that showed losses from rental properties and other Schedule E deductions. But while this group made up more than a third of the filers (% of Returns), it paid only one-thirtieth of the personal income taxes collected that year (% of Net Tax). Not surprisingly, that fat third of the populace only made a little over 5% of the total AGI reported on Oregon tax returns (% of AGI). That makes the ratio of AGI to Net Tax 0.62:1, which indicates that — on this raw basis — the group’s percent of the AGI reported for the state as a whole was greater than the percentage it paid in taxes.
I’ve collapsed the higher-end categories in order to mesh with some other studies for future posts, but if you look at the Excel file from the state, you can see that the 7,511 filers who claimed more than $500,000 in income paid one-sixth of the total personal income tax collected by the state in 2005.