A Sales Tax, Anybody?

Lawmakers are about to start debating a shakeup of the state's tax system—and an unpopular idea leads the list.

In the history of Oregon politics, there are few things voters have hated more than a sales tax.

But when voters approved a property tax limit more than two decades ago, the state's political leaders said it was only a matter of time before Oregonians would get so fed up with dwindling services and cuts to public schools that they would change their minds.

Three veteran Democratic lawmakers say it's time. 

The three will push a plan in the 2013 Legislature that would use revenue from a 5 percent sales tax to make big cuts in income tax rates, provide property tax breaks and still raise an extra $1 billion a year for the state budget.

The proponents claim the extra $1 billion would come from sources not currently paying taxes. 

"If everybody's tax burden stays the same and we can bring in $1 billion extra every year for education, that sounds pretty good," says Sen. Mark Hass (D-Beaverton). 

The idea is being pushed by Hass, Sen. Ginny Burdick (D-Portland) and Rep. Tobias Read (D-Beaverton). Hass and Read especially are feeling heat from constituents who say state funding levels are starving local schools. The Beaverton School District laid off more than 100 teachers this year.

"There's an urgency in Beaverton for more revenue now," Read says.

But they have an entire state to convince—including Gov. John Kitzhaber, a fellow Democrat, who tells WW he wants tax reform but doesn't think the time will be right before 2014. Kitzhaber wouldn't have to sign the measure—legislators would send it directly to voters—but his resistance could make an already daunting task even more difficult.

Still, Kitzhaber says, polling and focus-group data suggest Oregonians' aversion to a sales tax may be shifting.

"It's not a non-starter," he says. "I think the challenge is to have enough time to have a conversation about the importance of [tax] stability."

Voters have rejected the key component of the lawmakers' concept—a sales tax—nine times. Still, it's been a bipartisan issue in Oregon. Two governors, Vic Atiyeh, a Republican, and Barbara Roberts, a Democrat, unsuccessfully proposed tax reforms based on sales taxes. The last major legislative reform proposal came in 2007—courtesy of two Republican and two Democratic senators—but resulted only in a study.

The mechanics of tax reform are daunting: Three-fifths of the House and the Senate would have to go along. Sales tax proposals have historically been opposed not only by anti-taxers but liberals who see sales taxes as regressive, hitting low-income people hardest.

The plan offered by Hass, Read and Burdick would impose a 5 percent sales tax that would exempt necessities such as groceries, utilities and prescription drugs.

The tax would raise an estimated $8.6 billion in the 2015-2017 biennium, according to the nonpartisan Legislative Revenue Office. 

The plan then calls for deep cuts in income tax rates: down to 6 percent for most Oregonians. That's one-third off the current rate of 9 percent most Oregonians pay.

The plan also calls for a property tax cut: Homeowners wouldn't have to pay taxes on the first $50,000 of a home. That's a sizeable benefit considering the average assessed value of a home in Multnomah County is $182,000. And the plan includes lower capital gains taxes—a priority for the business lobby.

All of these tax breaks would add up to $5.3 billion in the 2015-2017 biennium. And that would leave $1.9 billion over two years for the state budget and schools.

Kitzhaber wants legislators to first deal with the priorities he's set out for 2013: reforming the state's public pensions, and following through on changes to the state's education and health-care systems.

House GOP spokesman Nick Smith says his caucus is open to tax reform but skeptical. "We don’t have a revenue problem, we have a jobs problem,” Smith says. 

But Ryan Deckert, Oregon Business Association president, says his members strongly support some version of the Hass/Burdick/Read plan. "This is where the game is," Deckert says. "If you want to fund the ambitious education goals we have, this is where we have to go."

Joe Baessler, political director for Oregon's American Federation of State, County and Municipal Employees, urges caution. "We wouldn't want to go through the very difficult process of trying to pass something that's unpopular with voters," Baessler says.

But Hass is not sure schoolkids can wait. 

"We need to challenge the myths," Hass says. "It's hard to tell parents that the long-term funding solution to school finance is tax reform, but we're not doing anything for a year or two or even longer.” 

FACT: Oregon voters last turned down a sales tax in 1993 by a 3-to-1 margin. The highest vote a sales tax ever received was 29 percent. That was in 1934.

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