Get ready for a new Oregon sales tax debate

Oregon Governor John Kitzhaber is setting his sights on a major overhaul of the state’s tax system.

The Democrat kicked off his campaign for re-election this week. But behind the scenes, he’s gathering business and political leaders for talks that include one of the most politically taboo topics in Oregon: a sales tax.

Oregonians proudly point to the fact that their state is one of just five in the country without a sales tax. In reality, residents and visitors pay more than $1 billion a year in sales taxes. They do when they buy gasoline, rent a car or stay in a hotel room.

And don’t forget beer and cigarettes. All told, these so-called “selective sales taxes” cost Oregonians — yes Oregonians — an average of $377 a year, according to the Oregon Legislative Revenue Office.

But that’s small potatoes compared to what a broad based sales tax would cost. At say, 5 percent, the state could expect more than $4 billion a year in new revenue.

“For the average Oregonian, your taxes won’t go up,” says Democratic state Senator Mark Hass. “They’ll be different, but they won’t go up.”

Hass’ proposal would pair a sales tax with cuts to the state’s income tax. By adding a sales tax to the mix, Hass hopes to even out Oregon’s up-and-down economic roller coaster ride.

“We have this terrible boom and bust cycle tax code,” he says. “We bring in too much in the good times, not enough in the bad times. And it’s in these bad times when Oregon has a train wreck.”

Hass and other legislative number crunchers figure that even if you cut the income tax, you’d gain more than enough back with a sales tax. For one thing, all those tourists coming to Oregon to see Crater Lake or go skiing would pay taxes every time they ate in a restaurant or bought a souvenir.

A sales tax would also reel in cash from people who, well, operate in cash — income that may not make it to their income tax returns.

Hass quips, “I always say drug dealers, they have to buy sunglasses.”

So-called essentials like groceries and medicine would be exempt. And Hass’ plan would also create a sales tax credit that low-income Oregonians could file on their state tax return. Those details help alleviate the concerns of those who worry about the impact of a sales tax on the poor.

Chuck Sheketoff, from the Oregon Center for Public Policy, doesn’t think a sales tax has to be paired with an income tax cut. He says, “The problem with lowering income tax rates generally is that the biggest winners are the wealthiest Oregonians.”

Sheketoff and others on the political left would rather see Oregon raise income taxes on corporations.

That’s a strategy favored by Joe Baessler, an Oregon lobbyist for the American Federation of State, County and Municipal Employees. Baessler says that while he’s not opposed to a sales tax per se, he also thinks voters just wouldn’t stand for it.

“It lost by a lot in the ’90s,” says Baessler. “And maybe things have changed, but it seems hard.”

Baessler’s not kidding when he says it lost by a lot. Seventy-five percent voted against it back in 1993, the last time it was on the Oregon ballot. And even though Governor Kitzhaber is open to the idea of a sales tax, it’s clear that he’s well aware of the challenges involved. And he’s in no rush, either.

“I expect we’ll get something on the ballot before 2016,” says the governor. “But I think it’s premature to really delve into the details of that before we really know what’s possible.”

And what’s possible from a numbers standpoint isn’t the same as what’s possible from a political standpoint. That 1993 vote was the ninth time Oregonians rejected a sales tax. The first was in 1933.

Chris Lehman reports for public radio’s Northwest News Network. His stories can be heard locally on OPB and KLCC.