Sales tax vs income tax

[eridani]

http://www.pewstates.org/projects/stateline/headlines/how-two-state-tax-systems-have-and-havent-shaped-metro-portland-85899381614

VANCOUVER, Washington - To understand how tough Tom Craig's job is, you only have to take a look at the sign in the window of the store he manages: "NO SALES TAX-We Pay It For You." Craig is the president of Sparks Home Furnishings in downtown Vancouver, a city that's often overshadowed by its counterpart in Canada with the same name and by Portland, Oregon, which is directly across the Columbia River.

In Vancouver, the combined state and local sales tax rate is 8.4 percent. Oregon has no sales tax at all. To compete with Oregon stores, Sparks doesn't charge its customers sales tax either. Craig says the store doesn't raise prices to compensate for the cost, so the money comes straight out of the store's bottom line. "Eventually, I think all higher-end retailers will be gone from Vancouver and Clark County," he says. "I think it's inevitable. We'll go to Portland to set up our store."

Separate systems

What Craig is coping with is two states and one metropolitan area with an economic structure unlike that of any other place in the country. Oregon makes up for not having a sales tax by having one of the highest personal income taxes in the country. The state's top rate on income, 9.9 percent, trails only Hawaii and California. Meanwhile, Washington's average state and local sales tax rate is 8.8 percent, behind only Tennessee, Arizona and Louisiana. The end result is that there's almost no way that Oregon and Washington - two states with similar geography, similar politics and similar weather - could possibly have more different tax structures.

Those differences make the Portland metro area a unique place to consider one of the most salient questions in state politics today: How much do state taxes matter? Republican governors in states such as Florida, Kansas, Maine, Nebraska, Oklahoma and South Carolina have pursued deep tax cuts over the last two years, arguing, with the support of conservative economists, that low taxes are the key to attracting people, businesses and jobs. Critics on the left have responded that the idea of residents fleeing high state taxes is mostly a myth. They argue that comparatively high taxes allow states to pay for essential public services, without compromising economic vitality.

[HeiressofBickworth]

1. We recently had a vote on Sales v. Income taxes

There are arguments both ways for and against either tax. What we got here was the chance to add income tax to the already existing sales tax. We voted against income taxes. The reason? The measure did not ELIMINATE the sales tax. If the measure had passed, we would have had TWO taxes, both sales and income. TPTB said that the sales tax rate would be reduced, but those of us who have half a brain know that it would be back up to the 8.8 in no time. So, I voted against it and enough other people voted against to veto it.

Yes, the border towns between OR and WA have their issues. On the one hand, WA has a sales tax while OR has an income tax. So what do people do? Well, of course, they shop in OR and live in WA. They even have jobs in OR. For a while, when it was advantageous to do so, they licensed their cars in OR and lived in WA. That situation changed and it's not so prevalent now.

[eridani]

2. The issue is the total amount of tax you need to fund public goods--

--NOT how many revenue streams the total amount comes to. A balanced tax system, taxing work, consumption and wealth equally, is far less subject to wild swings.

Our only current wealth tax is the property tax, which IMO should be supplemented by taxing other forms of wealth.

[HeiressofBickworth]

3. Agreed, no tax is the perfect revenue stream

Property tax is a tax on wealth only if you view real estate as an investment. The problem with property tax is it affects retired people who paid off their 30-year loan and look to having a secure place to live in retirement. Rising property taxes force people out of their homes. Sales taxes affect the poor who pay the same tax on food and other necessities but they pay a greater portion of their limited income than the wealthy. A state graduated income tax is as fair as it can get, as long as the monied interests don't get exemptions and other tax dodging rules. The problem with the measure was that it was not going to solve any problem but was going to merely add an additional tax. If they re-write it as a cancellation of sales tax substituting an income tax, it would stand a better chance of passing.

[eridani]

4. That's why the load should be shifted away from property tax

Other forms of wealth should be taxed, and would raise proportionally more money.

[haleymills]

5. studied the portland/vancouver area

I've found plenty of retailers and small business owners who have preferred to set up shop in Vancouver, moving from Portland. Anecdotal evidence aside, Vancouver is growing at 5x the pace of Portland (Multnomah v Clark Co), even though it is still a smaller city. Portland loses a significant amount of wealth to Vancouver, because it's incredibly advantageous to live where there is no income tax. BTW, If you live in Washington and go to Portland to shop, you are supposed to pay sales tax that is then remitted to Washington through an agreement between the states.

It's an incredibly interesting area to study, but a close look at it doesn't bode well for people who want to tax the wealthy: it shows that those who fall into the highest tax brackets and have been the target of Oregon's tax hikes simply move the heck away. In fact, Oregon has collected only half the revenue they projected for their last tax hike primarily due to the fact that the wealthy have moved out of their state.

I also think WA's vote on an income tax was more about distrusting government to not keep expanding the income tax.

[eridani]

6. The vote was more about an additional type of tax that people weren't used to

In fact, if income tax were universal, EOI calculations of a few years ago showed that 4 out of 5 people would pay less due to greatly reduced sales and property taxes. It's an unfortunate political fact that people who would benefit most from the introduction of an income tax are the very people least likely to support it.

Few low income people really care about being bled dry by sales taxes. So you pick up a bottle of hair conditioner on sale for $1.29 and you give the cashier $1.42. Big whoop. Who has the time to save all of their year's receipts and add up the totals?