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Can Oregon teach us about tax reform?

Gov. John Kitzhaber Credit: Oregon/Flickr

Some would consider advocating for major tax reform while running for governor bad politics. John Kitzhaber, though, is apparently not among them. Not only is Oregon Governor Kitzhaber planning to run for a record fourth term as governor, he wants to overhaul his state’s tax system by enacting a sales tax, as the Washington Post reported back in October.

Kitzhaber, a Democrat, announced in December that he will run for a second consecutive term, the limit under Oregon’s constitution. He also served two terms in the 1990s.

Even before announcing, Kitzhaber outlined a plan to start a new “conversation” on comprehensive tax reform; a process he began by enlisting formerly distant representatives of business and labor to draft sales tax proposals together.

If successful, he may also have at least a modest impact on Washington state’s revenue and the border economy, especially in Clark County, where people will drive into Oregon just to shop tax-free.

But win or lose, it will be a fascinating exercise for Washingtonians to watch and perhaps learn from. Both Washington and Oregon are overly-dependent on a single — albeit different — tax source. (In Washington, that's sales tax; in Oregon, it's income tax.) And both have struggled to adequately fund public education.

Oregon’s current tax reform discussion began in 2013, when the state Legislature held hearings on two bills: One, Senate Bill 824, would add a 5 percent sales tax and cap personal income tax at 6 percent.

That bill would take effect only if voters approved the second bill, Senate Joint Resolution 36. A constitutional amendment, SJR36 would limit the sales tax to 5 percent and specify several important exemptions: Water, food, clothing, drugs, medical and mobility equipment and utilities would not be taxed.

In the first two years, a fiscal analysis estimates, the two bills would bring in an additional $760 million.

A sales tax is sure to be a contentious issue – especially in the greater Portland area and Multnomah County, where Washington residents often drive a short distance just to shop tax-free. For their part, Washington legislators have tried to attract Oregon shoppers by enacting a sales tax exemption for residents of states with less than 3 percent sales taxes.

A 5 percent tax in Oregon is likely to have a small but significant positive impact on Washington’s economy. Currently, sales tax revenues per capita for Clark County, which lies on the Oregon border, are low compared to Cowlitz and Lewis counties to the north.

Attempts to install a sales tax in Oregon have been failing since the 30s. Most recently, in 1993, 75 percent of Oregonians voted against a ballot measure that would have dedicated sales tax revenue to education.

Kitzhaber’s reform efforts, now underway, will need bipartisan support. Democrats currently have slim legislative majorities, but Oregon’s constitution requires three-fifths supermajorities in both houses to pass revenue increases.

But Governor Kitzhaber is clearly ready for what will certainly be an uphill battle.

A team of business, labor, and education representatives he’s assembled, supported by both Democrat and Republican pollsters and researchers, is already working on a sales tax proposal. The goal: A 2016 ballot measure that would introduce Oregon’s first sales tax.

And if anyone could make it happen, it would be the wildly popular governor gearing up to serve a fourth term.

“The final big challenge on the cost side,” Kitzhaber explained in November, “is restructuring our antiquated tax code and system of public finance to make sure that it is equitable, that it is stable, and that it is aligned with the kind of economic activity and the kind of jobs that we want to create. Not last year, but in the next 10, 15, 20 years in the state of Oregon.”

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