A Sales Tax is the Wrong Place for Oregon to Start on Reform

The Oregonian
April 3, 2013By Chuck Sheketoff

It was refreshing to read The Oregonian's March 31 editorial "Oregon's income gap," insofar as it recognized the need for more revenue to meet the needs and aspirations of Oregonians. Too often tax reform discussions ignore that fundamental goal.

But where should tax reform begin? At a time of soaring corporate profits and income inequality, tax reform must first raise new revenue from profitable corporations and high-income Oregonians.

Unfortunately, The Oregonian's proposed solution would require middle-class and low-income Oregonians and small-business owners to pay more, while reducing the contributions of wealthy Oregonians and CEOs. That's because the paper advocates a sales tax.

Read the original version of A Sales Tax is the Wrong Place for Oregon to Start on Reform published in The Oregonian

A sales tax is inherently regressive. It asks proportionately more from poor and middle-income Oregonians than from millionaires.

The editorial board's sales tax proposal springs from faulty logic and a misguided focus on per capita personal income. Oregon's per capita personal income has been rising, though it lags the national average. While it would be better for Oregon to exceed the national average, that has nothing to do with whether our state can afford to invest more in schools and other public structures.

Saying that Oregon can't afford greater public investments because per capita personal income lags the national average is like saying that you can't afford to repair the roof on your house because your income is below your neighborhood's average. There's no logical connection between what you can afford and the average income of others.

The Oregonian's assertion that a sales tax "isn't dependent on income" is ridiculous. A sales tax requires sales to generate revenue. For there to be sales, you need customers with income. To the extent that The Oregonian is advocating substituting (in whole or in part) a sales tax for an income tax, such a move could exacerbate our revenue woes. Over the past 26 years, Oregon's income tax has done a better job at generating revenue than Washington's sales tax. Oregon's economy and personal income have been growing and can support increased funding for our schools and other key public structures. We just need tax reform to capitalize better on those economic gains.

Because the gains have mostly flowed to the top of the income scale, it's right to ask wealthy Oregonians to contribute more.

Corporations also can chip in more. Thanks to the proliferation of tax loopholes, corporations now contribute only 7 percent of all income tax revenue, down from 18 percent four decades ago. Very profitable corporations are paying Oregon's corporate minimum tax.

In recent years, the corporate lobby has been trumpeting Oregon's below-national-average per capita personal income to divert attention from pressing issues such as corporate tax avoidance, income inequality and poverty. Unfortunately, The Oregonian has joined in selling the red herring.

That's not to say that any sales tax proposal ought to be dead on arrival. After more revenue is raised from the well-off and corporations, a sales tax discussion might be worth having. Any worthwhile proposal would need to protect low- and middle-income Oregonians with a sales-tax credit to offset its regressivity; exempting essentials would not be enough.

It's a welcome sign that The Oregonian recognizes the need for more revenue for public structures. Let's hope the paper comes around and also recognizes that tax reform should begin by asking more from those most able to contribute.

Chuck Sheketoff is executive director of the Oregon Center for Public Policy.

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