Oregon is not a high tax state

Repeat after me, conservative politicians and right wing talk show hosts: “Oregon is not a high tax state.” Again: “Oregon is not a high tax state.” Good. Now say it on your own. Over and over.

And don’t let me hear you say the opposite this election year, because it isn’t true.

Yesterday I didn’t like writing checks and sending them off to the federal and state governments. But when I licked the envelope that went to the Oregon Department of Revenue it made me feel better to know that Oregon ranks 36th out of the 50 states in state and local taxes as a percent of per capita income.

Check it out. The U.S. average is 10.1%. Oregonians pay 9.6%.

So there’s good reason to argue that we should increase the state income tax to pay for essential services such as schools, prisons, and my own personal favorite, the state police (Remember the days when, if your car broke down, you’d say to yourself “a highway patrolman will be coming along soon.” Those aren’t these days).

The most obvious place to raise taxes is on Oregon corporations, who pay the lowest taxes in the nation. Before we consider a sales tax, let’s see how much money can be raised by having corporations pay their fair share.

The Oregonian editorial board agrees. Unfortunately, they chose the most mystifying possible name for today’s lead editorial that spoke about the need to change the state’s lopsided tax structure: “Oregon Koyaanisqatsi.”

I just spent ten minutes laboring on my own to figure out what Koyaanisqatsi means. I wrote down the letters in reverse order. I toyed with anagrams of political leader names, but couldn’t get Kulongoski, Mannix, Minnis and such to fit together into Koyannisqatsi. Then I tried the obvious: Google, which led me to Wikipedia.

Koyannisqatsi is a little known documentary film with the subtitle, “Life out of balance.” Nice to know that the newspaper assumes that its readers have such highbrow tastes as to be familiar with a movie that has no narration and relies on slow motion and time-lapse photography.

They likely are wrong about that. But the Oregonian got tax policy right:

While it may be hard to imagine Oregonians ever voting to impose a sales tax, even if it could be shown to be revenue-neutral, there are a couple of obvious things the state should do soon. One is to raise the minimum corporate income tax from its easy-sound-bite level of $10. Another would be stop sending tax kicker checks back to corporations.

These modest steps wouldn't solve the state's budget problems. But they would be steps in the right direction -- and they would be good business for Oregon.

Comments

[Ramon]

Taxation is high art. Its practioners are so clever to have broken it into so many pieces and disguised it in ways that shed the label "tax". Some taxes in Oregon are comparatively low, but taken together, fees in Oregon are very high. So the question is really not useful.

The cost of government - what it spends - is what matters. Because that cost is ultimately paid for by the public.

And Oregon's public sector is, comparatively, VERY high-spending. We are particularly out of line with fringe benefits like health care (due to low deductible, zero-to-no copay policies) and pension (PERS). These legacy costs are cannibalizing basic gov't services. Until they are reined in, we will be at a competitive disadvantage.

The bigger question is, "In Oregon's political climate how can this ever happen?" More likely, we will grind it out like the labor-dominated social-welfare states of Western Europe and watch our more competitive neighbors create a real-wealth differential.

[Sid]

I would be happy to see two things happen: 1) Have a single piece of tax legislation that both lowered Oregon's personal income tax while introducing a consumption tax at the same time. 2) Increase the minimum corporate income tax (and, yes, my business is incorporated in the state of Oregon which means I'm actually supporting a tax increase on myself.)

I do think Oregon's personal income taxes are too high and unreliable as a consistent tax base. A consumption tax would even out the volatility.

(full discloser: I'm not a big consumer.)

[Justin]

"More likely, we will grind it out like the labor-dominated social-welfare states of Western Europe and watch our more competitive neighbors create a real-wealth differential."

Yes, how in America, there are now 800,000 more millionaires, the richest 20% of Americans make more money, yet the bottom 40% make less than 20 years ago. It is, indeed, a real-wealth DIFFERENTIAL.

Whereas in Sweden, arguably the most progressive nation in the world, crime, unemployment, environmental racism, and social problems are almost nonexistent, as compared to this country.

[David English]

I agree that Oregon is not a high tax state.

However, that's not going to remain the case since Jessica's law has been passed. We are going to have to build more prisons and the legislature is going to have to find a way to pay for that.

[Bill Holmer]

"Environmental racism?" Is that where the spotted owls hate the Chinook salmon?

[Jim]

Ramon,

I would dispute whether Oregon's spending is "too high" given the considerable needs for health care, public infrastructure, and natural resource protection that, in my opinion, are not keeping up with population growth and a changing economy. But I would agree that we can always improve how and where we spend our tax dollars.

Nevertheless, taking the long-view, income and property tax cuts to business combined with cut backs in federal programs are clearly the a biggest contributors to the current contraints on the state budget that are squeezing basic services.

Oregon's higher per-capita spending may be declining due to the fact that it has a lot to do our state's tradition of planning and innovation which allows our state government to win more federal grants, especially in the environmental protection, land-use, and transportation arenas (That said, we still send more tax dollars to Washington DC then we get back in comparison to most states, largely because we lack a significant military industry.) Federal cut-backs in these areas (proposed by the Bush Administration) and, sadly, the lack of real planning and policy innovation will hurt our ability to win federal dollars in the future.

On the topic of government spending and waste, Robert Sahr at the OSU Political Science Department has done some very interesting research on the relationship between people's basic understanding of Oregon's tax system and their views on government spending.

In general his research has found that the less people can answer basic factual questions about the tax system the more likely they are to believe that government is wasteful.

An excellent summary of Sahr's research and some other very informative history of Oregon tax policy and education funding in Oregon can be found in the Winter 2005 edition of Oregon's Future Magazine:

http://www.willamette.edu/centers/publicpolicy/projects/oregonsfuture/archives.html#Vol6No1

Another informative, non-ideological view of our tax system and the issues to consider in tax reform can be found in the City Club of Portland's 2002 research paper on Tax Reform:

http://www.pdxcityclub.org/cgi/search_research.pl

Sid,

What concerns be about your proposal is that it would most likely make our overall tax system more regressive. It would do so without making it more stable because declines in spending often fall faster and quicker than income when we have a recession.

A consumption tax can be made non-regressive, and perhaps even slightly progressive, but it would take make equity a high policy priority (not likely to be the case with the current legislature).

Turtle McBride wrote an interesting piece entitled "Serious Thinking About Sales Taxes" that explores the challenge of making a non-regressive sales tax:

http://www.willamette.edu/centers/publicpolicy/projects/oregonsfuture/PDFvol2no3/2_3mcbri.pdf

Best,

Jim

[Chuck Sheketoff]

The Corporate Accountability Reporting measure will show that there are many large corporations that know that Oregon is a low tax state.

See http://www.ocpp.org/cgi-bin/display.cgi?page=CARIntro

[Sid]

Jim,

One of the benefits of a sales tax is that it picks up some tax revenue from money that is made illegally. After all, pot growers have to buy stuff too.

Perhaps that sounds like a silly argument, but money made in the underground economy amounts to billions, all of which goes totally untaxed except in states that have a sales tax. I'm sure there must be some studies out there that estimated break downs how much tax revenue is lost vs. how much is collected through sales taxes from the underground economy.

As far as progressivity is concerned, if you buy your designer jeans at Nordstrom for $190 and pay a 5% tax, and I buy my jeans at Wal-Mart for $12 at the same rate, I'm paying less in taxes for my jeans than you are. Agreed, we are paying the same rate, which is not progressive, but we're not being forced to pay on the same amount.

Most states have an exemption for food and medicine.

[Chris McMullen]

Justin, assume your statements are true, I'd still rather live in the U.S.:

The Swedish Research Institute of Trade (HUI) said it had compared official U.S. and Swedish statistics on household income as well as gross domestic product, private consumption and retail spending per capita between 1980 and 1999.
Using fixed prices and purchasing power parity adjusted data, the median household income in Sweden at the end of the 1990s was the equivalent of $26,800 compared with a median of $39,400 for U.S. households, HUI's study showed.

"Weak growth means that Sweden has lost greatly in prosperity compared with the United States," HUI's President Fredrik Bergstrom and chief economist Robert Gidehag said.

International Monetary Fund data from 2001 show that U.S. GDP per capita in dollar terms was 56 percent higher than in Sweden while in 1980, Swedish GDP per capita was 20 percent higher.

"Black people, who have the lowest income in the United States, now have a higher standard of living than an ordinary Swedish household," the HUI economists said.

If Sweden were a U.S. state, it would be the poorest measured by household gross income before taxes, Bergstrom and Gidehag said.

[james mattiace]

Could someone clarify this please.

According to data I have from Citizens for Oregon's Future Oregon was ranked 41st last year (46th the year before)

I don't remember a tax increase (other than local options and the Mulnomah. tax, but many of those were renewals)

Why do we keep dropping in the rankings or is the data being calculated differently? (ie COF data leaves out fees?)

I do think the return on investment arguement for federal taxes is spot on, as well. Virgina, Calfornia, Missouri etc may pay the same amount of federal tax (and I believe higher state tax) but they get a bunch more in return. And since the Bushies slashed the money we do get (tuition assistance, food stamps etc) we'll get an even lower return now. But maybe, just maybe, a new 2007 Democratic controlled Congress will invest in alternative energy and perhaps we could reap some of that wind (no pun....ok yes yes pun intended) The good folks over at Apollo have started the conversation at least.

So sound bite - "Oregon has low taxes", but just how low are we? And more specifically, who bears the tax incidence? We're not as regressive as Washington, but we sure aren't as progressive as NY or MN.

james

[darrelplant]

Sid, do you have an example of a state with a progressive sales tax, i.e. one in which the poor pay a smaller percentage of their income in sales taxes than the middle class or wealthy?

According to a 2004 report from the Washington State Department of Revenue (http://dor.wa.gov/docs/reports/WA_Tax_System_11_17_2004.pdf) people making less than $20K/year paid more than 15% of their income on average in state and local taxes. Those making $60-70K paid 7.7%, and those making over $150K paid 4.4%. And that's a report from the people who administer taxes in a state more dependent on sales tax than any other in the country.

So yeah, the rich pay more in absolute dollars*, but a sales tax tends to affect the lives of the poor even more aggressively than a flat tax does. Or is there some other research you know about?

* But not necessarily by so much. Take the bottom end of the $20-30K bracket and the $150K bracket, for instance. The average for the former is 9.8% (in actuality, the figure for a $20K income is going to be higher, because the figure is an average for the entire bracket). That comes out to $1,960 in state and local taxes. The household making $150K would pay $6,600. Despite making 7.5 times more, the higher-earning household pays about 3.4 times the tax. The first household is left with a little over $18K before federal taxes, the second has $143K. Some would say that's like an incentive to make more money!

[Patrick Henry]

Chris (McMullen)

The comparison of Sweden and U.S. per-captia private consumption and retail spending you cite rests on flawed and outdated measures of economic well-being.

They assumes that private wealth accumulation and consumption is the only measure of social progress. They ignore the tremendous common wealth disparity between the U.S. and Sweden; private consumption or per capita GDP discounts Sweden's wealth of public infrastructure (human, social, and natural) that translates in to greater wealth as defined by things like public health, educational attainment, community safety, leisure time, and environmental quality.

Local, regional and international efforts to develop alternative measures of standard of living/quality of life have been evolving for years. They have produced alternative measures like the Genuine Progress Indicator (GPI) and the Index of Economic Well-Being (IEWB) which attempt to incorporate the public and non-consumptive values listed above (as well as the tradition measures).

It is worth noting that these more comprehensive indices of progress fairly consistently show much higher per-capita well-being in Sweden then in the United States.

For more information see:

http://www.rprogress.org/index.shtml

P. Henry

[Pat]

I'm not sure how they do the math to arrive at OR being at place 36 in total tax, but I think their methods are flawed. I lived in NY before this, the number 1 tax state, and I will now pay 2000 dollars more in income tax here than in NY. That hurts. Now my sales tax was about 8.25 in NY, but there is no chance I paid anything close 2k in sales tax in NY. That means I would have purchased over 24k worth of stuff. Since there is no sales tax on groceries, and even clothing has sales tax free weeks, it's highly unlikely I spent anywhere near this. So, for me, that puts OR as #1 in taxes in the US. I'm planning to move to Washington soon.