Representative Dennis Richardson: Sales tax to replace property tax

By State Representative Dennis Richardson,

The “Tax For A Tax” concept (which I introduced in the May 18, 2007 newsletter by that name), would exempt the vast majority of Oregonians from paying real property taxes in exchange for a retail sales tax. This retail sales tax would be instituted by Oregon voters, protected by the Oregon Constitution, and could not be raised by the Legislature. In fact, a Tax For A Tax could not be altered without a majority vote by Oregon citizens.

Drafting A Tax For A Tax will not be easy. It will require working together to craft a Referral to the Voters that is so clear, tightly-worded, and iron-clad that a majority of Oregon voters would feel secure in voting for it. Is this possible? Maybe. It will take uncommon amounts of vision, honesty, cooperation and mutual respect from both sides of the aisle–Democrats and Republicans and liberals and conservatives.

Revenue measures, such as the Tax For A Tax, originate in the House of Representatives. The expected huge turn-over in leadership after the November election will present an opportunity for a more bipartisan and cooperative approach to solving key policy issues-issues like tax reform. The 2009 Legislature could change the adversarial way the Oregon Legislature does business. I feel hopeful.

Assuming the House Democrats and Republicans decide to work together to draft A Tax For A Tax and send it to the voters for approval, I would suggest the following factors be considered:

– A Tax For A Tax would exempt property owners from paying taxes on the first $10 million of assessed property value as of a certain date (perhaps July 1, 2008?). The exemption amount is negotiable, but it must be high enough to exempt Oregon homes, small business and small family farms and ranches. Any attempt to make the exemption too low would not only violate the spirit of the Tax For A Tax concept, but likely result in a rejection by Oregon voters. For the Tax For A Tax to become Oregon law it must be good for Oregon and not be perceived as a political ploy to get more money from Oregon taxpayers.

– The Tax For A Tax would have a constitutionally limited 5% retail sales tax. For a complex Referral such as the Tax For A Tax to take place, a 2/3 majority vote is required of both the Oregon House and Senate before it could be sent to Oregon voters. The wording of the Referral should have both the exemption of the property taxes and the beginning of the retail sales tax occurring on the same date (January 1, 2012?).

– The 5% retail sales tax of a Tax For A Tax must be sacred. The Legislature must not be able to increase it without a vote of the people-which is why the Referral must have constitutional protection. Provisions should also be made to prevent local governments, districts, etc., from peeling off fundamental government services and funding them with “multiple additional piecemeal levies.” This would circumvent the Tax For A Tax contract with Oregon taxpayers. One proposal to protect exempted property owners would be to require a double majority for any such future levy to be assessed on real property after the Tax For A Tax is implemented. Another potential strategy would be to include a provision applying the real property tax exemption from a Tax For A Tax to any future levies passed by the electorate. The challenge will be to prevent the “multiple additional piecemeal levies” of fundamental government services while allowing a jurisdiction to fund a park or an airport, which is a local decision by local taxpaying voters.

– The Tax For A Tax should include a formula for tax money distribution. This formula for Oregon’s 36 counties would meet current local bonding and district commitments and incorporate the following: 1. Adequate base-costs for running each county-which would not be determined by current tax levies (this would especially help O & C and rural cities and counties), and 2. Population and amounts of revenues collected (this would especially help the urban cities and counties). Without such provisions the rich counties would merely get richer and the poor counties would stay poor. 3. The revenue formula determined for local government should be indexed for CPI and should ensure the counties benefit from future increases in retail spending-such as by having a dedicated percentage of Citizen Tax revenues collected.

– The Tax For A Tax should not create a “tax cliff.” This would occur when a person or company owning property assessed at a value just above the exemption would be required to pay all real property taxes, plus the new 5% sales tax. To avoid such a “tax cliff,” there could be a structured or phase-in provision. One example would be to require those with real property assessed at $10,000,001 – 11 million to pay 10% of their assessed property tax, those with assessed values of $11,000,001 – $12 million to pay 20% of the assessed property tax, and so forth in ever increasing 10% increments until 100% of the real property tax assessment is being collected. In any event the 5% sales tax would apply to every one.

– The Tax For A Tax should include a broad based retail sales tax provision. Experience in other states indicates the wisdom of having the Tax For A Tax be a “broad based” retail sales tax that essentially includes all retail products and services ( including food products, except for items requiring home preparation), excepting gasoline and diesel. Here is where political pressures will be felt the strongest. Since a broad-based retail sales tax is inherently regressive, provisions should be made to protect poor seniors on fixed incomes and other poor individuals and families (those at or below the Federal Poverty Level). With current technology, new ideas could be considered, such as providing a “sales tax exemption card” for those Oregonians who file tax returns, signed under penalties of perjury, evidencing their low income qualifications (such a requirement would preclude those illegally in Oregon from avoiding the Sales Tax.) Alternative consideration could be given to a system where a qualifying poor person/family could be reimbursed for sales taxes paid by having those taxes reallocated onto an Oregon Trail Card on a monthly basis. In short, we should take advantage of the technology currently in play and the reality that most purchases now are made (or can be made) electronically via credit card technology.

– Care must be used not to grant exceptions to the new sales tax. Although compassionate pleas will be made to exclude classifications of products or services, if tax exceptions are made, it will open the door for every special interest advocate and lobbyist in Oregon to work to get his/her client’s product or service excepted; drafting should avoid opening this Pandora’s box (if politically possible).

– Sales Tax Administration Costs Should Be Kept Low. With current technology and no previous sales tax bureaucracy in Oregon, careful thought should be given by the drafters on how best to implement the sales tax, and collect and remit the sales tax revenues. Although such details may or may not be included in this bill, Oregon must avoid creating an expensive sales tax collection process. A brand new sales tax system should be based on state of the art technology and on-line reporting and transfer capabilities for retailers.

In conclusion, the Tax For A Tax recommendations are my own. Politically, it is risky for me to make them, but I’m trying to create a better place for our citizens and our children. I am trying to be a statesman, not merely another politician more worried about re-election than about solving Oregon’s problems. You may see major flaws or have important suggestions that would help the Tax For A Tax become a standard of fairness for the nation. If so, I would like to hear them.

I have proposed the Tax For A Tax concept because Oregon needs substantive tax reform. If you have suggestions to make the Tax For A Tax plan better, please email them to me. If you have a better idea, please share it with me and with other Oregon Legislators. It is time for us, as citizens of the great state of Oregon, to stand up, step forward and be part of the solutions that will make Oregon economically strong, environmentally sound and educationally superior. Let’s start by reforming the Oregon tax system and implementing a Tax For A Tax.
Sincerely,

Dennis Richardson
State Representative

Post to Twitter Post to Facebook Post to LinkedIn Post to Reddit

Posted by at 12:17 | Posted in Measure 37 | 28 Comments |Email This Post Email This Post |Print This Post Print This Post
  • Fred Thompson

    The problem with the proposal is that the property tax is a much better tax than the sales tax. Smart policy would be aimed at making the property tax better.

    • Alan

      How?

    • Steve Buckstein

      Fred, I would be interested in hearing what you think about replacing the income tax with a sales tax.

      • RinoWatch

        Steve,
        Have you ever had to collect a sales tax, keep records, go through a sales tax audit?

        Why would any intelligent business person want to become an unpaid tax collector having to spend time & money and be subjected to one of most intrusive business audits ever.

        I have and that’s one of the business factors that attracted me to Oregon from Calif.

        • Rick

          I agree completely. I have a small business in OR and occasionally do business across the river in WA. The complexities and extra cost of being an unpaid tax collector for WA are enough to deter me from doing business there on any regular basis. Please keep Oregon free of a sales tax – or devise a system that spares business owners from the additional work and cost of collecting sales tax for the state on a forced and unpaid basis.

      • Fred Thompson

        Hi Steve,

        It would be nice if we could reduce state income-tax rates by adopting a well-designed consumption tax, preferably a comprehensive value-added tax with an income-contingent rebate, I don’t believe that this would be a panacea. Its benefits would be fairly small and its costs not insignificant, especially if not accompanied by changes in the federal tax code. Moreover, I think the likelihood that we would actually be offered the option of a well-designed consumption tax is practically nil.

        So why don’t we try to fix some real problems that have workable, practicable solutions?

        Best, Fred

        • Steve Buckstein

          Thanks for the input, Fred. The other problem is that pollster Adam Davis has told the Revenue Restructuring Task Force that Oregonians are highly unlikely to accept any sales tax plan that doesn’t totally eliminate another tax. Simply lowering the income tax rate won’t do it politically since most people don’t trust politicians not to jack the rates back up later. Even locking lower tax rates in the Constitution doesn’t convince enough voters to trust the polticians on this one.

  • Bob Clark

    With the Demos and government unions in charge of local and state governments, this is no time to be proposing a new tax in the hopes of exchanging it for another tax. The end result is likely to be more taxes overall. Property taxes are not likely to go away as they function as a way to finance urban renewal, and encourage the productive uses of land. For instance, if property taxes were to be eliminated, I and others would go right out and buy raw land and sit on it because a big cost of holding land would be eliminated, namely, property taxes. This wouldn’t encourage productive uses of land but discourage it. It would play right into the hands of environmental groups who want to buy up land, and turn Oregon into their exclusive park for the rich and well connected.

    How about reducing government spending instead to the rate of inflation and population growth. Keep trying until it overcomes the union gangs.

  • RinoWatch

    With all due respect, Dennis, NO Sales Tax! Give it up or be relegated to depths of the previous (9) hardheaded fools.

    As mentioned by Bob Clark above, you should be spending your time on doing everything possible to reduce government spending IE: Waste. You can start with the Data Center.

    Please get off this sales tax kick of yours before we turn on you…..

  • Crawdude

    No, get rid pf the income tax and replace it with a sales tax. You can’t write off both income and sales tax, it either or. You can write off the property tax and income or property and sales.

  • Anon

    There go those tax and spend House Republicans again…

  • Anonymous

    The three legged stool regime, Democrats, will prohibit any abolition of any existing tax. Regardless of what is added. And thier mission is to increases taxation at every level by way of any means possible. So any pretense that authentic “negotiations” or genuine “compromise” is possible makes me laugh in the pain of disgust.

  • Jerry

    The sales tax is a great idea. All the tourists will pay all our bills.
    I like it.

  • Marvin McConoughey

    NO on Sales tax. Consider these quotes, from the article’s context. 1. “could not be raised by the legislature…” Such a tax is unlikely. Evasions would include “emergencies,” “trial effort,” as with the annual session, “one time” exception,” etc. If all else failed, a super-heated drive to extract voter approval for change would be launched for as many times as necessary. Tax increases would never, ever, be reversed.

    2. “constitutionally limited” The legislature is not a reliable complier with federal law or federal and local constitutions. Consider the annual session just ended, the decade-long conflict over federal retiree rights, etc. Avenues of deception include friendly attorney general advisories.

    3. “adequate cost basis for running each county…” Such efforts are an open door to inflationary demands. For current example, consider the Oregon Quality Education Model, which very reliably always calls for more and more money with zero consideration for competing needs.

    4. “Oregon needs substantive tax reform…” So it does, and always will. The tax systems of all states are imperfect, thereby reflecting te imperfections of their creators. We live with the current system and thus know of its many faults. A new sales tax would swiftly reveal grave problems that appear only with experience.

    Rather than a new tax system, consider massive reform of the legislature to produce a higher level of honesty, greater productivity per session day, reform of the emergency spending system, elimination of closed-door caucuses, etc. Once legislators demonstrate sufficient management skills to achieve these modest reforms, then we can begin a tax reform discussion.

  • davidg

    Richardson never shares with us his real objective for this tax swap: will it raise more revenue or less? He also totally avoids discussing who will benefit by the plan (because they pay less in taxes overall) and who will be hurt by it (because they pay more taxes overall). He also avoids discussing the impact on counties: which will get more revenue and which will get less under his scheme? He obviously is afraid to touch these dynamite issues.

    In his last paragraph Richardson tries to justify his complicated plan by saying that Oregon needs substantive tax reform. I think Bob Clark, above, pegged the error in this analysis. If Oregon tried a little substantive spending reform, tax reform would be unnecessary.

  • Jerry

    It will raise more, trust me on that.

    Sales taxes are great, though, as for once the poor pay their fair share.

    If it would totally replace the state income tax that would be the greatest.

    And don’t forget, with all those tourists pouring in we get a whole lot of free money. FREE MONEY!!!

    It is the greatest thing ever.

    You go sales tax. You really go!!!

    • Brad

      Jerry, we already get this money from tourists. Hotels and rental cars are already subject to state and local sales tax, so by enacting a general sales tax, the money would come primarily from residents.

      • Jerry

        Darn. And they had me sold on the thing.
        You can’t trust these politicians it would seem.

  • Steve Plunk

    With due respect Rep. Richardson, no. Oregonians have already spoken on this a number of times and are tiring of saying no again and again.

    It’s not a lack of revenue but alack of spending discipline that makes it seem we are in constant crisis. I say no tax reform until the legislature can learn to budget like grown ups.

  • Mark

    What is it with Oregonians & sales taxes? I’ve lived here for over a quarter of a century, and I still find it hard to fathom this rabid visceral aversion, especially since we already have at least one general ‘sales’ tax — on gasoline, and also on alcohol & tobacco (courtesy of the feds, if no one else). There are pros-and-cons to all taxing schemes, but one in favor of broader sales taxes is that folks visiting the state would pay a larger more direct & visible — and fairer — share than they might otherwise for their use & consumption of various Oregon amenities. Sure, there is that gas tax (a sales tax) & a rental-car tax (also a sales tax) to pay for transit, and hotel/motel taxes (also sales taxes) for lodging, and alcohol/tobacco taxes for ‘sin’. But there are other things that visitors purchase or use – both goods & services, such as food/meals – that aren’t directly taxed. The proposed 5% tax would still be substantially less than our neighbors to the north & south. Whether, on balance, the proposal is worthwhile or not is another question, but we shouldn’t reject a ‘sales’ tax proposal simply because it is a ‘sales’ tax.

    Personally, as long as we’re imagining a more perfect union (fantasizing, to some ;-)), I’m in favor of a ‘flat’ general transaction tax (‘value added’/’consumption’ tax (say, 1%)) (that would include payment of salaries, so it would encompass an ‘income’ tax) & a ‘flat’ property tax (again, for the sake of discussion, 1%), so that we collectively generate enough for common government-provided services (roads, parks, police, etc.), but is relatively neutral with respect to whether one keeps or spends $ — let the market be a truly level playing field, without all the machinations of creative accounting.

    • dean

      Mark….”keeping or spending” is not always a matter of choice. Low income people don’t have the option to “keep” very much, especially these days. I have been here just over 30 years, and also have been puzzled by the firm resistance to a sales tax. I think at this point it is more about cultural pride than anything rational. The chief advantage of a sales tax over property is that the goose is less aware of being squeezed.

      • Jerry

        No, the chief advantage is that poor people finally pay at least SOME taxes. It is such a regressive tax that forward-thinking Oregonians, like myself, vote it down every single time because we don’t like hurting the poor.
        If you are in favor of a sales tax you are very wrong to the poor among us.
        Very wrong.

    • Anonymous

      Mark says “I still find it hard to fathom this rabid visceral aversion…” to a sales tax. Maybe the difficulty of comprehension relates to a misunderstanding of the opposition. It comes, in part, from the shared experiences of many thousands of Oregonians who came here from sales tax states. In part, it comes from people who have lived here all their lives and understand that hidden motives undergird most legislative pitches for altering the existing tax structure. Some opposition comes from our awareness that many states, of which California, is only one example, havenot found fiscal stability with a sales tax. I am probably a minority in my opposition, which comes from studying tax policy in college economics and reading multiple more recent books on tax policy.

      Still other opposition comes from knowing that tax changes must emerge from a murky and intensely political legislative process, then be interpreted by the courts through years of litigation.

      Oregon’s real problems are many, and have nothing to do with our freedom from a sales tax with its costly administrative burden

  • Gullyborg

    I won’t go into the matter of sales v. income tax, or sales v. property tax, or any other comparison. I don’t have enough data in front of me at the moment to know for certain if one plan is “better” than the other.

    What I will say is in two parts:

    First, I want a tax plan – be it sales, income, fees, whatever – that reduces the net burden (both fiscal AND regulatory) on businesses and individuals. Lower burdens mean more business and more consumer spending. That means economic growth. That means jobs and industry. Every economic study by every reputable economist shows this RAISES revenues, because more total money flows into the system. We would bring business IN to Oregon instead of seeing more and more of it leave. The end result is a win-win: government has more revenue to provide services, and people enjoy a higher quality of life.

    Second, I would like to see whatever plan is implemented involve the outright prohibition of ANY form of property taxation – including capital gains from the sale of real property.

    This would be a radical departure from history. Property has been taxed (and therefore controlled and essentially “owned”) by the state since the foundations of Anglo-Saxon law. But just because it has always been so doesn’t make it right. We were once under the control of the Crown. But we declared independence, even though our subject status had always been so. Now the time has come for us to realize true ownership of our own property.

    Homeowners, you don’t OWN your home. The government does. You pay rent. And government can raise your rent and you are powerless to stop them. If you improve your own land, the government can make you pay more rent for it. And if the “virtual” value of your land increases in the eye of the government, your rent increases with it – without the government needing to vote on anything and without your having done anything to increase the value. All government needs to do is update your tax assessment.

    So if your neighbors all update their homes and they start selling for more money than you paid for yours, your property value “increases” because your neighborhood suddenly seems to have higher property values. You can make your neighbor pay more in taxes by repainting YOUR house!

    Meanwhile, if you sell your newly more expensive home because you can’t afford the increased property taxes, guess what? YOU GET TO PAY CAPITAL GAINS!

    Property taxes and capital gains are the most disgusting form of taxation. They inhibit the accumulation of personal property. They inhibit the development of personal property. They inhibit the ability to move from one home to a less expensive home in order to free up equity for other purposes. But most of all, they keep you from ever really “owning” your land.

    Our founders wrote volumes about the pursuit of freedom. They wrote about life, liberty and property. Well, we may have life. We may have mostly liberty. But no one in this nation really owns property.

    Let Oregon lead the way in making that vision of the past into the reality of the future.

    ABOLISH ALL PROPERTY TAXATION ONCE AND FOR ALL!

    • dean

      Gully…a lower tax burden does not necessarily mean MORE spending. It just means MORE PRIVATE spending. And even this increase may be only temporary if the public services and infrastructure that makes private commerce in a modern world work break down. For example, poorly educated people are low productivity, so cutting taxes and school funding could have negative consequences on growth. See Mississippi for a great example of a low tax, low productivity, low everything long term experiment. Then compare it with high tax, high productivity, high income Massachussetts. Crumbling bridges make trucking goods a bit problematic as well.

      “Every economic study by every reputable economist shows this RAISES revenues, because more total money flows into the system.”

      That would be great if it were true. Only it isn’t. Its not true that every economic study supports this theory, and its not true that it even happens in fact. Clinton raised taxes and the economy boomed AND revenue went up and we balanced the budget for the only time in the past 40 or more years. The Laffer Curve is exactly that….a laugh. Its not reputable economics except at very high margins (approaching 100% on the highest incomes). Look it up.

      On property taxes…I hate paying them as does everyone. But the fact is most of us do not own our homes because they are mortgaged to the hilt, not because of our annual tax bill. Which by the way, pays for a set of services that if absent would drive property values through the floor. I’m talking about the basics of sewer, water, police, fire, parks, street maintenance and so forth. We pay for these services because we have voted them into place. They are not imposed on us unwillingly by the British Crown.

      You pay capital gains on a home only for what you gained over $500K, subtracting out all the improvements you put in. Very few of us are going to pay capital gains on our homes. (I happen to be one who probably will by the way, and I will hate writing that check, but the fact is I did not earn or work for most of the increase in my property value, which will come about due to a changed land use designation, and depends on public infrastructure investment to be cashed in on).

      Neighborhoods don’t “suddenly seem” to have higher property values. They either have them or they don’t. Easy to track through sales records. And in Oregon we do not pay increased property taxes as our land values go up, because rate increases are locked down to something like 3% annually. You can be reasessed higher if you make substantial improvements. Painting your house probably does not qualify. But if by painting your house you raised your neighbor’s property value, then great…he should send you a check when he sells it at a profit.

      Yes…cut property taxes. Cut all taxes. Give us free services. Borrow from the Chinese. Send the bill to our kids. Great idea. I think that has been the Republican way of governance since 1980. Terrific results all around.

    • Marvin McConoughey

      Gully says, “First, I want a tax plan – be it sales, income, fees, whatever – that reduces the net burden (both fiscal AND regulatory) on businesses and individuals.j” Gully, it is not going to happen. The inspiration behind the legislative review of Oregon’s tax structure is to get more money to legislators, cities, and counties to spend. A sales tax is the current pitch, with variations to come. All will be aimed at lightening someone’s pocket while enriching the legislators. PS: They also want higher salaries. The connection is too obvious to comment on any further.

  • mpow

    Taxation applied to consumption is a more effective and fair means of producing sufficient revenues for public services and infrastructure.

    I would suggest, however, that food and bev. be excluded, and fuel be included. Make this compromise before-the-fact and this measure will face less resistance from certain predictable and active constituents. in fact, flipping the food/fuel exemption gives this measure the moral/ethical high ground. Some otherwise hostile enemies may become natural allies in supporting the ‘tax for a tax’ measure. prudent compromise before-the-fact – this is key for ballot measure success, imo.

    Excluding food & bev. also gives some room for cities and municipalities to negotiate specific/acceptable revenue measures w/ local constituents. Herein lies a chance to demonstrate tax transparency in a way that everyone can understand. If human necessities like food/water are to be taxed, let the burden fall to local demonstration.

    The argument could be made that fuel/gasoline/diesel are also human necessities, but a successful ballot measure in this day-and-age (and in this state) should encourage energy independence. To do otherwise would be like giving lethal ammunition to your opposition (whoever and however few they may be). Besides, farmers could/would/should produce their own biofuel, and cooperative structure(s) could shelter this important constutuency from the fuel surcharge. However, if it were politically necessary that fuel be excluded and left to the local tax domain along with food & bev, so be it. Again, compromise is key.

    (Including fuel would more than make up for the hole left by food & bev. One necessary complication of including fuel here is voiding all other fuel taxes and surcharges at the state/municipal levels. this only makes sense if future revenues are distributed via the ‘formula’ prescribed by this measure.)

    Wording around senior citizen exemption should be absolute and simple, i.e. all senior citizens exempt for all purchases under $5000.

    Again, this ‘tax-for-a-tax’ idea is a good idea, and it deserves effort and careful consideration. Kudos to Rep. Richardson. Keep up the good work.

    m

    • mpow

      I neglected to mention that this ‘tax-for-a-tax’ is an even better idea if it also replaces the income tax. In which case fuel would have to be included to generate sufficient revenue, methinks.

      Taxing consumption sends/reflects the right message, while taxing income and property actually discourages the very things we should promoting as a society (hard work, self-reliance).

      I dare say this measure is profoundly Oregonian in nature. I hope this process moves forward.

Stay Tuned...

Stay up to date with the latest political news and commentary from Oregon Catalyst through daily email updates:

Prefer another subscription option? Subscribe to our RSS Feed, become a fan on Facebook, or follow us on Twitter.

Twitter Facebook

No Thanks (close this box)