I read with great interest this opinion piece in the Oregonian of July 6. The author, E. Walter Van Valkenburg, is a prominent Portland lawyer and the chairman of the Oregon Economic and Community Development Commission. He suggests, very mildly, that Oregon should add a sales tax to its financial arsenal.
His mild argument is not, on examination, very compelling. Mr. Van Valkenburg writes, "While we compete with states that draw revenue from property taxes, income or gross receipts taxes and sales taxes, Oregon stubbornly clings to a system that generates revenue from only two of those three sources. . . we simply can't generate enough revenue from the two sources we do tax to make up for the loss from not taxing the third."
Let's look at the facts. From 1971 to 1990, Oregon's local governments raised in property taxes an amount about equal to five percent of Oregonians' personal income. (The actual percentage paid by most Oregonian individuals would be lower, because property tax revenues include taxes on property owned by businesses and non-residents, but personal income doesn't include income attributed to incorporated businesses and non-residents.) Measures 5 and 50, the tax limit initiatives, combined with increases in personal income, cut the property tax bite to about 3.5% of personal income. Exhibit 6 in this document from the Department of Revenue shows the property tax trend. The fact is that we did generate enough revenue from these two sources to make up for not having a sales tax; it's just that in 1990 we chose to cut property taxes and not replace the lost revenue. The state itself didn't and doesn't generate any revenue from property taxes; it all goes to local governments.
Mr. Van Valkenburg (who despite our differences on tax policy is a very likable and engaging guy) adds that not having a sales tax "seems a particularly ill-advised strategy for a state in which tourism is a leading industry," implying that we are missing out on tax revenues by not nicking (nickeling?) tourists on their purchases here. Again, let's consider some facts.
How much retail spending comes from tourists? The Census Bureau estimates that total retail spending in Oregon in 2002 (the latest year I could find) was $37 billion. A fair guess is that it's above $40 billion now, but let's say $40 billion to be conservative. A study for the Oregon Tourism Commission estimated that in 2006, visitors spent $1.6 billion in restaurants and bars in Oregon, and that this was 23% of total visitor spending. This would put total visitor spending at about $6.5 billion a year. "Visitor spending" includes imported dollars (dollars from visitors to Oregon) and domestic dollars (dollars from Oregonians on vacation within Oregon). For example, the dollars that I spend at an Astoria restaurant are "visitor spending" even though they're not coming from out of state. I couldn't find a breakdown of how much of Oregon's visitor spending comes from out of state, so let's say that three quarters does. That makes the out-of-state tourist dollars about $4.8 billion a year, or about 12% of retail spending.
Allowing that these are rough estimates, they indicate that "let's tax the tourists" is a poor reason to adopt a general sales tax. Seven-eighths of the tax burden falls on Oregonians; one-eighth hits the tourist pocketbook. Indeed, the opposite should be true; if high income taxes discourage high-income persons from moving to Oregon, then high sales taxes should discourage tourists from spending in Oregon. A state in which tourism is a leading industry should, to encourage tourism, avoid enacting a general sales tax and play up this difference as a reason to visit.
Let's take up one more of the arguments for a sales tax. Mr. Van Valkenburg phrased it as follows: "If Oregon continues to position itself as a high income tax state, jobs will ultimately be lost to states that have a tax structure more favorable to businesses and the people who run them." I agree; however, we also have to consider the jobs that will be lost if Oregon adopts a sales tax.
Oregon has an unusually high level of retail sales per capita. The Census Bureau estimated that in 2000 Oregon's retail sales per capita was 1% above the national figure even though Oregon's personal income per capita was 3% below the national figure. This is not because we're profligate consumers, but because our border areas -- principally Astoria, Portland, Hermiston, and Ontario -- attract shoppers from the neighboring states who want to avoid paying the Washington or Idaho sales tax. In 1993 an economist who opposed the sales tax proposal of the day estimated that Oregon would lose 16,000 retail jobs if it adopted a 5% general sales tax, based on his estimate that Oregon picked up about $1.6 billion in retail sales and that retailers had 1 employee for each $98,000 in sales.
We don't need a sales tax. We need to do a better job of exploiting our freedom from a sales tax.
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