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.

Dennis Richardson
State Representative