Oregon has long had one of the most volatile tax systems in the country. When in 1990 Measure 5 limited property taxes to $15 per $1,000 real market value, the result was a stronger reliance on corporate and income taxes to fund state programs like education, public health and public safety.

That, combined with Oregonians’ aversion over the past decades to anything resembling a sales tax, has meant that when economic times are hard here, revenue drops, sometimes precipitously, and legislators must slash the budget.

Oregon is one of five states in the country without a sales tax, joining New Hampshire, Montana, Delaware and Alaska.

Alaska law allows local sales taxes to be adopted at the county level.Alaska also doesn’t have individual incomes taxes. Instead, it has a high property tax level and operates with a high severance tax rate — that is, it charges a great deal in taxes to remove oil and gas. New Hampshire has some of the highest property taxes in the country, while Delaware and Montana have a mix of personal and corporate income and property tax rates.

Meanwhile, Oregon’s individual and corporate income taxes are among the highest in the country, making up for relatively low property taxes and no sales tax.

The criticism of Oregon’s tax structure is its unpredictability. For example, Oregon’s unemployment hit 12.1 percent in 2008. By November 2008, the Oregon Office of Economic Analysis was estimating the state would collect $900 million less in revenue than it had projected just three months prior. By February 2009, Oregon’s state economist said the state’s shortfall had grown to $850 million for the 2007-09 biennium and was expected to reach nearly $3 billion in 2009-11.

Some believe that situation could have been abated, if not completely avoided, by something very unpopular in Oregon: a sales tax.

“Our problem is our income tax is a volatile thing, so when the economy sucks that revenue goes away,” said Ken Rocco, who heads the Oregon Legislative Fiscal Office. “With a sales tax, you’re still buying stuff, so it’s not totally immune to the business cycle, but it’s a little more steady over time than an income-based system.”

It’s no easy sell, as legislators have learned over the years.

The last time Oregonians rejected a sales tax was in 1993. A year prior, then-Gov. Barbara Roberts had pitched a 3 percent sales tax and lower income and property taxes to the Legislature. Roberts, herself an anti-sales tax crusader for many years, said she believed it was more fair to have a balanced, three-pronged tax approach. But her plan, which was mired in political debate, never made it through the House and wasn’t referred to voters.

Instead, voters a year later rejected a 5 percent sales tax to be given to public schools. That plan, brought to the ballot by the Legislature, would have included abolishment of the school property taxes on homes and an increase in corporate tax. The measure failed, with 77 percent of voters rejecting it.

Just this April, the idea came up again. Sen. Mark Hass, D-Beaverton, introduced legislation that would add a 5 percent sales tax in exchange for a drop in income taxes. According to reports in The Oregonian, Hass said he didn’t expect the Legislature to ask voters for a sales tax this year but wanted to start what is likely to be a long discussion on taxes.

While it may seem a viable choice, it’s definitely not popular among Oregonians. They’ve voted down a sales tax nine times. Jason Williams, who heads up the Taxpayer Association of Oregon, said Oregon spends more than most other states, per person, on government programs.

“There is no revenue problem,” he said. “This is just the height of spending recklessness and bad math.”

Williams said while he believes the biggest issue plaguing Oregon is its future debts to state public workers’ pensions, he sees a bigger problem in the Legislature’s lack of interest in making small cuts all around the budget.

“Of course we get the same response, ‘If it will only save a little bit of money, why do it? Why pick a fight over it?’” he said. “They cannot seem to do any basic level, priority-based budgeting because everything is of extreme importance as long as someone’s job is tied to it.”

Williams believes the reason voters have turned down the sales tax so many times is a lack of trust.

“I think if they can’t fix the revenue overspending problem first, you’re not going to be able to trust the politicians with a fair and limited tax system,” he said. “So if they create a sales tax, it’s only because they want more money. We’ll be in the same situation but with bigger holes to fill.”

State economist Mark McMullen says that even if Oregonians supported a sales tax, it wouldn’t be a cure-all.

“There are a lot of arguments for and against a sales tax,” McMullen said. “It’s a much more stable stream, so sales tax states don’t have to deal with the ups and downs that Oregon does.”

But there is another consideration.

“It would certainly make things smoother and easier to predict,” McMullen said, “but revenue would maybe not grow as fast.”

That’s because in an average year, personal income taxes provide more revenue than a steady, unchanging sales tax.

“Volatility is hard for state governments because all but one or two have balanced-budget requirements,” he said, which leads to programs getting funding when times are good, then getting cut when times are bad.

And a sales tax can be less useful in the long term, when people move away from buying goods and start buying services. For example, as a group ages, its members are less likely to buy cars or furniture, instead focusing money on services like hospital care.

But there’s another option besides a sales tax, McMullen said.

“The other way (to make Oregon’s revenue more steady) would be to manage around the volatile revenue stream with big reserves and funds so that we don’t have to change spending when revenues are lower,” he said.

But it’s a daunting proposal. McMullen said because governments have balanced-budget requirements, their hands are tied from making long-term investments. For example, he said, a government could decide to spend money today on early childhood education in an effort to cut down prison budgets in the future. But because it’s a two-year budget, none of those benefits can be seen during that period of time.

“It’s all cost up front,” he said.

— Sheila G. Miller, The Bulletin