All Politics is Local

$125M in sales tax dodging subsidizes bad Portland traffic, says economist

Tax evasion, to the tune of roughly $127 million per year, accounts for 10 to 20 percent of Columbia River bridge traffic, according to an analysis by a Portland economist, who says tolling could encourage enough shoppers to change their schedules and make a substantial difference with congestion.

Joe Cortright came to that number by looking at the relationship between total personal incomes and retail tax receipts, through state sales tax collections reporting and the U.S. Department of Commerce, in 2017.

(Cortright’s figures might vary slightly from what’s here, as he did a bit more rounding. We’ll include a few more digits for you party animals poring over data from the state Department of Revenue and U.S. Bureau of Economic Analysis at home.)

Clark County’s total personal income that year was about $23.8 billion, and its taxable retail sales that year were about $7.2 billion, or about 30.3 percent of total personal income.

For the rest of the state, excluding Clark County, total personal income was about $405 billion, with taxable retail sales about $148 billion, about 36.6 percent.

That roughly 6.4 percent difference between the county and the rest of the state, about $1.5 billion, is a good measure for how much money Clark County spends on shopping outside its bounds, according to Cortright.

Multiply that by the sales tax rate in much of the county, 8.4 percent, you get about $127 million in, as Cortright put it, tax evasion.

Joshua Lehner, an economist at the Oregon Office of Economic Analysis, said Cortright’s estimates fall in line with previous research on it.

His own research, done about a decade ago, found the “border effect” meant about 16.6 percent in lost Clark County retail sales, based on data from the early- and mid-2000s and a basic border tax model. Likewise, he said in an email, the Washington Department of Revenue updated that work a couple of years ago and found an 18.9 percent impact in Clark County in 2014.

“So all of the research, either back of the envelope or fancy models, shows roughly the same thing. The border tax effect is real and it has a big impact,” Lehner said.

He added this effect applies whenever there are different products or tax rates across neighboring jurisdictions.

“Oregon and Washington are just such a perfect natural experiment, it is worth studying,” he said.

There’s a similar, and large, effect for cigarettes, given Washington’s tax is much higher than Oregon’s, as is there one for video lottery sales. They’re higher along Oregon’s border, given Washington does not have video lottery terminals with line games in bars and restaurants throughout the state. Likewise, researchers saw big spikes in liquor sales after Washington’s privatization and higher prices a few years ago.

“It works in reverse too,” Lehner said. “Back when Washington legalized recreational marijuana, SW Washington sales were off the charts as plenty of Oregonians were crossing the river to purchase.”

Cortright’s interest isn’t really in tax dodging, though. It’s in how that tax break essentially subsidizes thousands of trips back and forth over the river, adding to traffic.

“Cross border shopping accounts for 10-20 percent of all trips across the I-5 and I-205 bridges,” he wrote. “Tax avoidance means we’re essentially paying people to drive and create traffic congestion.”

Let’s estimate, Cortright says, the average shopping trip to Oregon leads to $125 to $250 in spending per trip. That $1.5 billion in spending would work out to 6 million to 12 million trips per year, and between Clark County’s roughly 160,000 households, it works out to 38-76 trips per year, or three to six monthly. That’s 16,600 to 33,200 trips back and forth over the river daily.

If you figure the two crossings average 300,000 tips daily, Cortright’s estimates tally up to 10 to 20 percent of the trips across the river are for shopping.

Short of upending both states’ tax systems, congestion pricing during peak toll hours could get enough people to re-arrange their shopping trips to avoid the tolls it’d lead to a dip in traffic.

“Off-peak shoppers could continue to get their Oregon tax break and also avoid paying a high toll for peak hour travel. The result would be better traffic flow during peak hours for those who had less flexibility in arranging their travel schedules,” he says.

“It’s also worth remembering that it doesn’t take a huge reduction in traffic volumes, particularly at the peak hour, to get traffic to move much more smoothly. Getting shoppers to re-arrange their trips would make a material difference to travel times between the two states.”