Sales Attacks, Part IV

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.

In 2003, the Oakland Tribune published an article about a study of the California tax system which bore the headline: “California’s sales tax is ultimate roller coaster”.

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?