Aaron, you're right that a sales tax is regressive, but note that Beardsley suggests a $500 per person credit. Since that's a flat credit, it'll have a progressive effect. (It means a lot to a poor person, and not much to a rich one.)

Is that enough of an progressive effect to offset the regressive sales tax?

I don't know the answer; that's why I'm asking.

Kari, that supposes that everyone who pays sales taxes will file a state return, which of course is not true. You can't take a credit on taxes you don't have to pay.

Beardsley helpfully shows us which path NOT to take.

Torrid, if it were a refundable credit, that would give everyone an incentive to file. Free money, y'know?

Not that we're trying to force everyone to file for the sake of filing - but that's the mechanism that you would use to distribute the funds that make the sales tax progressive.

I'm certainly not sold on Beardsley's idea, I just think it's worth talking about.

It's not that it doesn't make the tax system "less progressive". It's that it makes the tax system more regressive.

What "extra cash" do you think a sales tax is going to bring in?

The really stupid argument for that is that all of the drug dealers will be paying taxes on their purchases, but if you think that's a significant amount of money, I'd like to see the proof.

The other argument is usually that all of the tourists will have to pay taxes. But when was the last time you took extra money on your vacation so that you could pay sales taxes in another state? If you've got X number of dollars to spend while you're vacationing in Oregon, you're going to spend X number of dollars. If taxes take a portion of that, it means that the people you would have spent it with (hotels, restaurants, tour operators, gift shops at the seashore) will get less of your money, meaning their profits will likely be lower and that they'll pay less in taxes on their income to the state of Oregon. You see, the money they spend is already taxed as a part of the income taxes paid by the businesses they patronize. If the tax laws are enforced and if the business is profitable.

Is a sales tax less volatile than an income tax as people keep claiming. Well, let's look at what Washington state's Department of Revenue says about their tax structure, which is more dependent on a sales tax than any other state in the country:

All of Washington's taxes are volatile. Some of Washington’s taxes are more volatile than others. Sales & use tax and business and occupation taxes are more volatile than personal income.

Then take a look at page 38 of this 2004 slideshow from WADOR

The combined major state and local taxes in Washington (sales and property) start off at 15.7% for households with incomes under $20K and go down for every income category until people making more than $150K are paying 4.4% of their income in state and local taxes.

The $500 rebate keeps getting tossed about. Has anyone run the numbers on it? Has anyone run numbers on how any of these tax proposals are actually going to impact both revenues and redistribution of the revenue stream?

Or are we going to get another thread where people just say that taxes are difficult to understand and throw out half-baked ideas "wondering" if maybe they might work.

Actually, raising more money for services on the backs of the poor isn't progressive. There are many of us who are "poor" who are not on OHP, don't get state services, etc. Up until I got my new job, we were bringing in $28K for a family of three. And we didn't use any more state/federal/local services than the average person.

So this idea that higher taxes on the poor is ok because they're going to get extra services out of it is 100% bull shit. I'm sorry, but it is.

JTT--

You'd have also paid taxes on shampoo, toilet paper, soap, shoes, clothes, food you eat out (including the food in the cafeteria), etc. It may still end up being a small tax cut for you, but having lived in a state for 22 years that had sales tax, I can tell you that for many of the working poor it's actually a tax increase.

Take Westlund's proposal for example. It shows a decrease only if you have a decrease in property taxes. Since most poor people rent, they would see no decrease. They actually end up paying a larger percentage of their wages in sales tax than those at higher income levels and more taxes overall than they do currently.

I do like the idea of the tax credit-- but there also needs to be some major reductions in the credits and deductions already there (can anyone say yachts). A $1000 credit would have meant we'd have gotten the $797 in taxes we paid last year back in addition to $203 more.

It's BS to act as if all, or even the majority, of poor people who will be paying more taxes will get more services. That's just not true.

Yes, some poor people will end up with more services. But that is likely a small population out of all the low income people. The only way you're going to effect a huge number of these people is with universal health care. Many of of us are sacrificing every month so we can buy health insurance from employers. There are no state services that are going to help us-- even the programs to help you pay for your insurance state you have to be without insurance for a certain number of months.

Stating poor people will get more services in order to justify them paying a greater percentage of their income in taxes than those at higher incomes is just a way for people to feel warm and fuzzy about passing along taxes to the people who can least afford them.

Yes they'll ony be paying $10 for an extra $1000 in OHP service-- but that's $10 they can't afford. I'd rather that $10 be paid for someone making a heck of a lot more money.

JHL:

Where in Westlund's data does it address families who make less than $35K? I don't see a link from his page on SB382 to the LRO report he's referring to. And I don't see an SMS for SB382 on the LRO page for 2005. Have you seen it? Because all I see is Westlund's data, not Oregon's. And yes, I do think historical data from a state with a sales tax as it's primary source of revenue is more reliable than projections of possible changes to a tax structure, no matter where it comes from.

The chart on Westlund's site shows a savings at every income level. It also predicts a billion more in revenue. I'd like to know where that's supposed to be coming from. Because it's not coming from trees.

I know several of us looked at the income levels shown, calculated the %s on them, and then applied them to income levels below $35K. All of them showed that not only would these people pay a higher % in sales tax than those at higher levels, they'd also pay more taxes than they do now.

The figures also show savings at the $35K income level, but many of these people don't own their home-- they rent. With home prices as high as they are, this will become more and more common. These people also see higher taxes than they do now because the listed property tax decrease would not apply.

It's fairly obvious by looking at the numbers that the additional revenue will most likely come from those making under $40K per year.

Toast writes...

WTF? Can't a progressive blog field it's own tax ideas that don't starve the state government, give a giant tax cut to the wealthy, and make progressive elements look like a welfare check?

OK, let's hear it. Start here.

I can see where the source of Westlund's data could be misleading...

See, under the charts where it says "Source: Legislative Revenue Office"... I'm guessing it means that the source of the data is the Legislative Revenue Office. Dunno. Just a guess.

Are you just purposefully dense, JHL? It's this kind of dishonest response that makes me suspicious of pretty much everyone on the sales tax side of the argument. What are you hiding?

I said that Westlund's page didn't have a link to the LRO (Legislative Revenue Office) report he's citing numbers from. I haven't been able to find the economic impact statements at the LRO (Legislative Revenue Office) web page for 2005 (http://www.leg.state.or.us/comm/sms/SMS05Frameset.html), either. Senate Bill 382, which Westlund has posted on his site, doesn't appear to have a staff sumary, fiscal impact statement, or revenue impact statement posted at oregon.gov. I wrote that -- although I assumed you could expand LRO to Legislative Revenue Office on your own -- in my post.

So I'll ask again very slowly: Have you seen the actual reports Westlund is citing from? Do you know where to find them? And yes, I contacted Westlund's office to ask about them as well.

Ben Westlund's staff very helpfully faxed me the LRO (that's Legislative Revenue Office to you, JHL) documents his site refers to earlier this afternoon. Apparently, they include elements that were not produced specifically for SB283 in its current incarnation (some of them date from 2003 and 2004), so they didn't have them in electronic format. I look forward to examining them.

As an aside, this weekend we're in the middle of our annual visit by a woman my wife met while she was at school 25 years ago. P is 49, developmentally disabled, and lives on an SSI check of $468/month. She lives in subsidized housing, where the rent is set at one third of her income. That leaves her $312/month for bills (some of her utilities are covered), food, Oregon Health Plan payments, transportation, etc. In other words, a little over $10/day. The only time she gets to leave town is when her sister buys her a train ticket to visit us. She doesn't pay taxes, she won't be getting any return-based credit of $500. But she's still going to have to pay sales tax on the non-exempt items she buys. And there are literally thousands of people like her in Oregon.

Sure, after you exempt groceries, utilities, health care and other non-sales tax items the amount P might pay per year is pretty small, but even that little bit bites when you're living on $10/day.

darrelplant--

Exactly! Because low-income people still have to buy soap, shampoo, toilet paper, cleaner, etc. And I'm sure they'd also like to be able to buy the occasional fast food item, a pizza, etc.

The table on Westlund's site proved that a sales tax hits low income people harder than those with higher incomes. All it takes is a quick bit of math to see the % of income spent on sales tax is higher at lower income levels than it is at high income levels.

People around here seem to act like $100 or $200 a year isn't that much-- but for those at the low income levels, that could mean not being able to buy enough food. Or having to buy cheaper, fatty foods instead of more expensive fresh fruit & veggies. Or not be able to afford their medication.

As someone who had been in this very situation the last few years, this is a huge issue to me.

I never said it would end up being the same as it is now. However, the fact remains that a sales tax is regressive and is harder on those at lower incomes than it is higher incomes. And right now it seems that it's the front runner in all the plans that are being pushed-- even Kulongoski has said he supports it (yes, he at first said a consumption tax, but was later asked if he meant a sales tax, and he said yes).

The people at the low end of the income scale were hit really hard by the state's downturn in the economy, and they have yet to recover. Increasing their tax load will only make it even harder for these people to survive. Our tax system isn't the progressive already, we don't need to make it even worse.

I've made some suggestions along the way, but tax reform isn't my strong suit. I'm much better in other areas the legislature will be looking at in the next session.

I don't think we're stuck with the current system no matter what. I think the current system needs some huge changes, including some of the deductions/credits removed from the income tax system, getting rid of the kicker, increasing the corporate minimum, overturning the new rules regarding only taxing a corporation on their sales in the state (which may lead to Intel paying only $10 in taxes), etc.

But just because I can't some up with a tax plan, that doesn't mean I can't point out what's wrong with plans like a sales tax or areas we need to fix. Not everyone's going to be an expert in tax reform, but leaving their views out just leaves us in the same place we've been for years.

LT, I'm not sure why pointing out that the sales tax is going to create a burden on the poorest members of the population doesn't give you pause about it's adoption. That, to me, seems as if it's an indefensible position right there.

And I'm not sure why you think that SB382 doesn't raise corporate taxes. The extra billion dollars in Westlund's proposal has to come from somewhere, after all. You can't reduce the tax burden on every taxpayer and still bring in more revenue.

In fact, according to the very sketchy numbers on how the $6.11 billion figure for a biennium was arrived at, under Westlund's plan the increase in revenue seems to be largely a result of sales and use taxes paid by businesses.

I've got a plan. Adjust the income tax rates to match the increase in revenue that SB 382 provides. All individual taxpayers get the same amount of PIT reduction. Business income taxes increase to make up the reduction and the extra billion. Everyone ends up paying essentially what they were going to under Westlund's plan, except there's no need to create a new tax collection structure (the income tax system's already in place), and people who would otherwise end up paying sales taxes but not getting a tax credit for it because they make too little money to file can continue to make it on their $10/day. That seems a lot simpler.

I'm all for revisiting Measure 5 and other anti-tax measures, but since the discussion here included a sales tax proposal, and a sales tax is one of the most regressive forms of taxation. I like to take the stand of "First, do no harm", then worry about the cure.

I don't know why you felt that anyone was stifling debate of SB 382. But you can't really debate something you aren't provided information about. What's on Westlund's site is very incomplete and has no supporting data. Even the LRO report -- 10 disparate pages cobbled together from material over several sessions of the Legislature, apparently -- leaves a lot of questions, but I commend his staff for getting it to me so quickly.

Well, I thought pointing out the flaws in his plan, talking about who it would hurt/help, etc. was debating the plan. Sorry. I guess only those who agree are debating, and those of us who disagree aren't.

You were the one that stated I think his plan deserves debate. I said I thought we were already debating it.

Very few poor people do indeed own their homes. A small percentage do, with the majority of them that do typically fall into one of two categories-- seniors who have already paid off their mortgage or those living in very, very cheap mobile homes. You may also have a few who have been left/given a home by a relative. You'll find more of these people in the rural areas of the state where home and land prices aren't what they are in the metro areas.

But generally, is very difficult for someone making $30,000 or less to own a home. We've been trying for quite some time, and it's virtually impossible to get a mortgage that is enough to buy a house-- even with our VA guarantee. And unlike most people at our income level, we have $0 in credit card or student loan debt.

So typically property tax refunds are going to do very little for the average low-income person. Where they're going to see the biggest help is in lowering their income tax and/or additional credits.

And I think we're being a lot more specific than a "sales tax hurts people." Not too long ago, we had a discussion on sales tax and I got very specific using Westlund's plan-- I showed how the numbers worked on various income levels. I didn't see any sense in repeating all the numbers once again.

Debating section 99 is good, and several of us did that on a previous thread. Most states specify what prepared foods means-- it'll say whether or not frozen foods are exempted, items from the grocery store's bakery, etc. When it's not specified, that usually means that frozen dinners, pizzas, etc. at the grocery store are indeed taxed. The items that aren't taxed include meat, frozen/canned/fresh veggies and fruits, pasta, rice, etc.

Many poor people literally have to watch every single penny if they want to be able to buy the basic necessities. Having dealt with a sales tax for most of my life, I can tell you that plenty of times we had to choose between a food item or something like shampoo or toilet paper-- and it was because of the sales tax. You'd be surprised how quickly sales tax can add up on your weekly grocery shopping. Our reciepts clearly showed how much total sales tax you paid, so it was easy to see how big that number could get without you even realizing it.

In reality, it's going to be just about impossible to create a revenue package that includes a sales tax and doesn't hurt poor people without some kind of up-front exemption for low-income people. And the only way to do that is to give them some sort of card to show stating they're exempt. Of course this means humiliating yourself everytime you go shopping. It's bad enough the looks you get from people when you use the Oregon Trail Card (as they inspect every item you bought). Give people a card that exempts them from taxes, and it'll be worse. And of course you have the problem of people selling/renting their card out to others, allowing others to use it, etc.

Even a tax credit at the end of the year wouldn't work. For starters, those who don't have any taxable income don't file. Those making under a certain income, and therefore paying no state taxes, also don't file. Secondly, you have to wait until you get your rebate to have that money back. So it eats up a portion of your spending money all year, and you don't get it back until the following year.

Having dealt with a sales tax, and many discussions in Texas about getting rid of it, raising it, lowering it, etc. where I was able to hear many experts in the field debate it out, I just don't see how we can have a sales tax and it not harm low income people.

LT says: YES, I KNOW, A POORLY WRITTEN SALES TAX COULD BE REGRESSIVE!

I'm not sure how you keep missing this point, but the problem with a sales tax is that it starts out regressive. It's not that it's regressive if it's "poorly-written", it's that studies of tax structures show that a sales tax is regressive in any of its existing forms in the United States and abroad.

If you've got an example of a non-regressive sales tax anywhere in the world, I'd be more than happy to see it. But the sales tax proposal in SB 382 will hurt poor people. That's not an opinion, that's simple fact borne out by studies of tax systems conducted by governments that depend on sales tax revenue. If you choose to ignore facts, that's your prerogative. You're "not convinced that it is impossible to craft a tax reform proposal including a sales tax which will make poor people ... better off than things are now." I'm not convinced that it is possible, I'd be willing to look at any examples you, Westlund, or someone else can point to.

As for poor people owning their own homes, according to the Legislative Revenue Office, the most regressive portion of the current Oregon tax system is the local property tax. According to the Oregon Tax Incidence Model Research Report, households on the lower end of the income spectrum pay about 8% of their income in local property taxes (on average) which rapidly drops to less than 4% at about $25K and continues to shrink to just about 2% at $240K. I'll give Westlund's plan credit for low-income property tax relief, but not if it's taking away money from somewhere else.

I think shampoo and pizza should be some of the details "openly debated by candidates for legislature." Why don't you?

Jenni:

According to the Oregon Tax Incidence Model, about 30% of people in the under $15 income group own their homes outright, and another 20% have a mortgage. It's the 2nd largest percentage of free and clear ownership in any of the income categories in their data. The largest is in $15K-21K and it's about 35%.

Like I said, those have to be people that fall into one of the following categories:

1. are older and paid off their mortage back when their income was higher
2. the home was given/left to them, such as by a family member who passed away
3. they own mobile homes

At $15K, you can only get a mortage for about $60K, if you're lucky. That's not going to buy a house-- it'll buy an older mobile home.

We've been looking to buy a house for a few years now, and at $28K income it's been impossible to buy anything other than an older mobile home (pre-1988 when they started being more regulated and are called manufactured homes) in a park where you have to rent the lot you're on.

The reason why many people at the higher income levels don't own their homes "free and clear" is because many added on second mortagages. Most people I know who are at the $50-120K range put second mortgages on their homes within the past 8 years or so when the economy got bad. Those at the lower income levels often don't have enough credit and/or equity in their homes to be able to do that.

Here in the metro area, you're going to have a lot more low income people living in apartments. Once you get into more rural areas, the rental options are often few and far between-- you don't see a lot of big apartment complexes out there. That's often where you get a number of the low income people who own their homes.

It'd be interesting to see how many of those "home owners" actually live in mobile homes. I know that there are a good number of large parks in the poorer areas of SE Portland and Gresham.

I should note that $60K could probably buy a home outside of the metro area. I've been searching for homes pretty regularly over the past several months, and the only ones we found that cheap were mobile homes in a rental lot or a tiny 1 bedroom home half the size of our current apartment (which is pretty small already)-- which had a lot size only slightly larger than the house. And they all needed tens of thousands of dollars worth of work.

Do you happen to have a link to an OTIM that is more recent than March of 2001? That's the only one I was able to find, and of course we all know that the economy started tanking right about that time. So I'd be interested in seeing more recent numbers.

I did notice that home ownership in the lower income levels was under 50%, but it jumps to 70%+ in the higher income levels. And that renting is nearly 50% at the lower income levels (some people are listed as "other," which likely means they're people living with others, homeless, etc.), but in the single digits at the higher income levels.

So far as I'm aware, that's the most recent publication on OTIM, Jenni. But then I just looked it up yesterday myself after following some other references to it. The report I found was the announcement of the model's completion; I don't know how much the basic assumptions have changed since that took place.

Another useful report with more recent data (although not all of the same categories) is LRO's "2006 OREGON PUBLIC FINANCE: BASIC FACTS". I don't have the URL handy, I downloaded it the other day and saved it to disl.

I never said there weren't people who were recently laid off who had second mortgages. The numbers we're having to go with are from 2001, so the people likely had higher incomes back in 2001 than they do now. The report came out in March, 2001, which means it was done before the majority of layoffs in the state.

And no, those aren't just generalizations. That information comes from several years worth of reading papers and reports, hearing speeches and talks on the topic, and knowing people who are in those income levels. Although I did leave one off-- those who had higher income levels when they bought their house, but for various reasons now are at a lower income (health reason, lay off, etc.).

The fact is if you're only making $15K per year, there is a limit to how large of a mortgage you can get. Believe me, I know it-- we've been trying to get a house and our income level is higher than that.

So those who are at that income level and have a home will typically fall into a handful of situations-- they had a higher income when they bought the house than they do now, the house was left/given to them, the value of the house is extremely low.

And just because I mostly talk about Multnomah County doesn't mean I don't care about the rest of the state-- it means that Mult Co is the county I know the best. And my thoughts and opinions on topics don't mean that the candidates feel the same way-- I'm not a candidate, nor do I represent one. What I have to say here represents no one but myself.

BUt the fact is that I'm not someone in a higher income level making assumptions about those at lower income levels. I'm not someone who was at lower incomes a decade or two ago, and has lost sight of what it's like to be low income.

I grew up in a family that was low income for much of the time. Because of health problems, we've been below 133% of the federal poverty level for most of the time we've lived in Oregon. I know what it's like to be poor. I know what it's like to not be able to buy food for your family. I know what it's like to be stuck in an apartment because our only other option is buying a 1976 mobile home in a park. I'm not outside looking in, I am one of these people.

As a wonky business school professor who has crunched some of these numbers, I am inclined to say that if one's goal were sustainable state spending over the long term, Beardsley's proposal makes reasonably good sense. Frankly, however, I don't think substituting a 5 percent consumption tax for part of the income tax and giving every taxpayer a $500 individual, or $1000 per couple, annual rebate, would make much difference in terms of total yield (maybe a little less, depends on the design of the consumption tax), volatility (it would reduce it somewhat because of portfolio effects), or fairness (hard to say -- I haven't crunched those numbers in over 15 years). See State Fiscal Management: What Practitioners can Learn from Risk Management Theory at SSRN.

One point of fact, Oregon doesn't have a low corporate income tax rate, quite the contrary. What it has is low corporate income tax revenues. There is good chance there is a relationship here.

The problem is how we allow corporations to calculate their "income" for tax purposes.

And rather than making the system better, the legislature made it wore this last cycle. Now they get to exclude even more of their income from taxation.

Getting to pay $10 on billions in revenue, just because you sold less than $100 million actually in the state, is just wrong.

I'd like to see our legislators explain to a low income family why they have to pay hundreds in state tax, while a corporation brings in billions and only has to pay $10.

One point of fact, Oregon doesn't have a low corporate income tax rate, quite the contrary.

So, explain to me how PGE paid $10 last year?

How did PGE pay $10 last year? I don't know. Last time I looked they were a subsidiary of corp with large carry over losses, but I don't know their current status. For the most part, corporations (and individuals who can do so) will find a way to recognize income (profit) where tax rates are low and avoid recognizing income where rates are high. Hence, jurisdictions with low corporate income tax rates tend to collect more revenue from corporations than jurisdictions with high corporate income tax rates. As a general rule, economists aren't very enthusiastic about corporate income taxes, primarily cause we cannot figure out who pays them. Are they they shifted forward to consumers (in which case they are probably regressive in their incidence) or do they stick where they are (in which case they are paid by shareholders, who are thus subject to double taxation)? I think the evidence is that they are paid moslty by the owners, but then I think that is also mostly true of property taxes. Regardless who pays them, Oregon would probably be better off with lower corporate income tax rates.

This is definitely not an appeal for special tax breaks for business. Ordinary taxpayers, are the ones who fill the gap between incentives for business and state spending. Oregon would no doubt have better governance if it would stick to a simple tax system that is broad and fair, and then compete with neighbouring states by deciding how high or low to set their overall tax burden. The corporate kicker is a marvelous example of a nasty tax gimmick IMHO.

If higher corporate tax rates means lower revenue, what were we doing that brought us higher corporate tax revenue as a percentage of all tax revenues? Or what are we doing now that has produced such an imbalance between corporate and individual burdens?

And I call BS on shareholders being subject to "double taxation." Shareholders are not the company; the company is the company. If corporations are persons, you can only be one person at a time--and if the corporation is a person that pays taxes, then when it distributes dividends to its shareholders, it is distributing them to OTHER people. Thus are the shareholders only taxed once, when they receive income from the person known as AT&T, or Microsoft, or Love Sac. Supply siders want to have it both ways on that one.