Oregon Tax Reform “” A Tax For A Tax?
Is it time for a Sales Tax in Oregon? Not if it is going to be an additional tax. California has the so called “three legged stool” of taxation””income tax, property tax and sales tax””and the last time I checked California had a $33 billion deficit. The question of adding a sales tax to Oregon’s current income and property taxes has been answered by the voters nine times already.
But, what if we replaced the property tax with a sales tax? A tax for a tax? Hmmm”¦now that’s an interesting concept, and I am willing to discuss that possibility.
I am the child of parents who lived through the Great Depression. It changed their lives, and as a result of their experiences, my life changed too.
My father was born in 1910. He’s gone now, but years ago I remember my father telling me about the time when he was renting a house in Santa Monica in the early 1930’s. His landlord came to him and said:
“Mike, if you have the money to pay the property taxes on this house you can have it. I’m broke and I am going to loose this house because I cannot afford to pay the taxes on it.”
Neither the landlord nor my dad had enough money to pay the taxes, and that house was lost in foreclosure. It was taken from its owner like so many others.
I have never forgotten that story. Over the years, both in California before Measure 30 and in Oregon, I have heard of folks, usually elderly people on meager, fixed incomes, who have been greatly burdened by ever-increasing real property taxes on their homes.
I feel it is shameful that folks can never really own their own homes. We can be frugal and work hard to pay off our mortgages, but if we fail to pay those ever-increasing property taxes, the government can take our property from us.
Paying real property taxes is like renting your own home from the county tax assessor’s office.
Real property taxation is a problem for Oregon counties too. Since Measure 50 passed, which restricts real property tax increases to 3% per year, counties are slowly getting strangled. Many county costs exceed 3%, so while the revenue generated from real property taxes increases by 3% annually, the costs to maintain current county service levels is inflating at more than 3%. Thus, the percentage of county revenue generated from real property taxes is declining every year. (Click here to see the Affects of Real Property Tax 3% Limitation on County Budgets).
Last month at a special meeting conducted by Senate President Courtney and House Speaker Merkley in Grants Pass, the issue of inadequate funding for counties was discussed. I took the opportunity to describe a bill (HJR 44) that is sitting in the House Revenue Committee. HJR 44 would benefit both private citizens and the government’s need for stable revenue by replacing most real property taxes with a Constitutionally protected 5% sales tax. It would do so by exempting the first $10 million of assessed property values from real property taxes. (Click here to see the presentation.)
The question is, if we could get rid of property taxes on our homes, small farms and businesses, would we be willing to pay a 5% Sales Tax? Would we be willing to exchange a tax for a tax?
To me, the idea of replacing real property taxes is worth considering. Even if, over the course of a year, I were to pay more in sales taxes on my purchases than I do in real property taxes, I am still open to the idea. People could actually own their own homes, while having some control over when and how much they pay in sales taxes. Replacing property taxes with a sales tax would allow people to be taxed when they choose to buy something– those who make only minimal purchases would pay minimal sales taxes. To me that sounds fair.
Replacing the real property tax with a retail sales tax would spread the cost of state and local government over a far wider population of taxpayers. Presently, millions of tourists come to Oregon, enjoy its beauty and use its facilities, without paying a dime of taxes to help cover the costs.
In addition, it is estimated that between 10-15% of Oregon’s personal income currently avoids taxation””a huge amount of money. And the truth is the wealthiest population in Oregon is the retirees who are moving to our state.
In each instance, it makes sense that tourists, tax-dodgers and wealthy-retired folks should share the burden of paying for the services they use and enjoy, even if they don’t earn Oregon wages and don’t pay much, if any, income tax.
By replacing real property taxes with a retail sales tax, the poor and the elderly can truly own their own homes. If someone wants to buy a new Lexus, they would expect to pay 5% tax on it. If someone else can only afford or chooses to buy a cheap used car, then the sales tax they pay would be only on the cost of the cheap car, assuming they bought it from a car lot and not from a private party. In fairness to people on very low fixed incomes, provisions would need to be made to protect the truly poor — those who would be most drastically impacted by a sales tax.
At 5% Oregon’s retail sales tax would be lower than the sales taxes for California, Idaho and Washington, so Oregon’s border cities would still attract shoppers from our neighboring states.
Could the idea of exempting the first $10 million of assessed value from real property taxes and implementing a 5% retail sales tax work financially? The financial analysis looks very promising.
The attached graph shows that in the 2009-11 biennium $8.8 billion of real property taxes are expected under our current real property tax system. If property assessed at less than $10 million were exempt, the property tax revenues drop to $1.4 billion — the amount that would be collected on Oregon properties assessed at higher than $10 million each. Add to that $1.4 billion of property tax, $9.5 billion of anticipated retail sales tax revenues and we have a total of $10.9 billion–$2.1 billion more than the currently anticipated revenue from property taxes alone.
In short, there would be sufficient Oregon revenues to replace lost real property tax dollars and adequately fund Oregon counties, cities and districts in the future. Instead of being financially strangled, our local governments would have “first dibs” on a reliable source of funding that would be indexed for inflation and population growth.
With a forecasted increase in revenues of $2.1 billion, even if $600 million were spent to reimburse the poor for sales taxes they pay on necessities, there would still be a $1.5 billion to help stabilize and enhance Oregon state expenditures for education, public safety and/or health care.
To conclude, I believe people should have the ability to really own their own homes, and if hard times come, they can hunker down and live on the absence of expense. By exempting the first $10 million of assessed value, Oregonians can truly own their homes “free and clear”. By replacing the lost property tax revenues with a sales tax, local and state government gain a more stable source of revenue.
The idea of being able to truly own one’s property and being able to live on the “absence of expense” during hard times is very attractive to most of Oregon’s voters. The idea of implementing a Sales Tax, that would provide a steady flow of state revenue to pay for education, health care and other government services would also be attractive to Oregon’s citizens, urban and rural alike. And, the requirement that a Sales Tax is Constitutionally fixed and cannot be increased without a vote of the people is crucial for any discussion of Oregon tax reform to gain voter approval. implementing the “tax for a tax” model would require both the ending of the real property tax and the beginning of the sales tax to be combined in a single bill with a single vote. The trade of a “tax for a tax” would need to occur on the same effective date. With a 2/3 super majority vote the Oregon Senate and House can send the “tax for a tax” reform model to the people for their decision on this important issue.
Since this “tax for a tax” reform model is new, I would appreciate knowing what you think of it. Would you be willing to trade the property taxes Oregonians pay on their homes, small farms and businesses for a broad-based, Constitutionally restricted 5% Retail Sales Tax? Please vote below and give me your input on this proposal.
To VOTE on the “Tax for a Tax” Click Here.