January 7, 2003
Oregon's Taxes Declined for Rich, Rose For Poor and Middle Class over the 1990s
"Tax System Basically Regressive"
As President Bush unveils an "economic stimulus" plan that is being criticized for lowering the taxes primarily of the wealthiest, a new study was released today showing that over the past decade the share of taxes paid by low- and middle-income households in Oregon has risen, while taxes paid by affluent households has dropped. The study, by the Washington, D.C.-based Institute for Taxation and Economic Policy (ITEP), reconfirmed a report issued two years ago by the Legislative Revenue Office that showed Oregon's tax system is basically regressive, with upper-income households paying less in taxes than those at the bottom as a percent of income.
The ITEP study, "Who Pays? A Distributional Analysis of the Tax Systems in All 50 States," looks at the tax burden under current tax law, including phased-in elements, for non-elderly households.
Download a copy of this news release:
Oregon's Taxes Declined for Rich, Rose For Poor and Middle Class over the 1990s (PDF), January 7, 2003.
Download just the graphs (PDF).
See the complete report from ITEP.
The study shows that since 1989, taxes as a share of income fell 0.4 percent on the top one percent of Oregonians, but rose 2.2 percent on the lowest income group, 1.2 percent on the next income group, and 0.1 percent on middle income Oregonians. "The combined impact of tax changes in Oregon has helped Oregon's well-heeled, but asked more from those at the bottom of the ladder," noted Jeff Thompson, economist with the Oregon Center for Public Policy, which released the study with ITEP.
"Property and income tax cuts primarily benefited upper-income households, while increased tobacco taxes added to the regressivity of Oregon's tax system," said Thompson. "In the wake of 1990's Measure 5, the Legislature repealed a low-income property tax relief program, making the property tax change more of a nightmare than reform for low-income Oregonians," added Thompson.
The ITEP study notes that "two of the most regressive state income tax loopholes are capital gains tax breaks and deductions for federal income taxes paid" and that in combination with a nominally graduated rate structure such as Oregon's, these tax breaks can sometimes create the odd-and unfair-result of the highest income taxpayers paying a lower share of their income in income taxes than middle-income taxpayers.
After accounting for the deduction for property and income taxes on federal returns, known as "the federal offset" in tax parlance, low- and middle-income families in Oregon pay a higher share of their income in state and local taxes than do the richest families. According to the study, the lowest income families, those in the bottom 20 percent of the income distribution, paid 9.4 percent of their income in state and local taxes, while middle-income households paid 8.1 percent and the top one percent paid 6.1 percent of their income in taxes.
"The tax rate on poorest Oregonians is one and a half times the effective rate on the wealthiest Oregonians," noted Thompson.
"When you take the federal offset into consideration, Oregon's tax system is regressive. It is not based on ability to pay," said Thompson. "These findings confirm an earlier study by the Legislative Revenue Office that showed Oregon's lowest income families have the highest tax burden," added Thompson.
Before accounting for the federal income tax offset, the lowest income group paid more in taxes than any other group, and Oregon's tax system is "flat." Typically the state Legislative Revenue Office and others include the federal offset because it is a more accurate picture Oregonians' tax burden.
The study documents that the most regressive state tax systems combine heavy reliance on sales and excise taxes with small or no income tax. The ten most regressive state systems all include sales taxes, and six of those 10 states even exempt food sales from taxation.
The study notes that the most progressive states rely little on sales taxes and have significant and refundable earned income credits. "The single best thing Oregon could do to improve its tax system is to make refundable and expand the earned income tax credit for low-income working families," said Thompson.
"Tax reforms that exempt capital gains income from taxation, that lower the top tax rate, or that adopt sales taxes without large and refundable credits for low-income families will make Oregon's system more regressive than it is already," said Thompson.
"Measure 28 is one tax change that would make Oregon's tax distribution fairer," commented Thompson on the measure pending a January 28 vote. "Because it raises only the top rate it is progressive proposal. It will cost the typical Oregonian less than $6 per month and a majority of Oregonians less than $3 a month, making it a good deal for Oregon taxpayers," Thompson added.
The Oregon Center for Public Policy is a Silverton, Oregon-based non-profit research institute that uses research and analysis to advance policies and practices that improve the economic and social prospects of low- and moderate income Oregonians, the majority of Oregonians.
The Institute on Taxation and Economic Policy is a nonpartisan Washington-based research group. ITEP examines the tax systems of all 50 states and the District of Columbia, using the Institute on Taxation & Economic Policy Microsimulation Tax Model. The ITEP Model is similar in methodology and data sources to the elaborate computer models used by the U.S. Treasury and the congressional Joint Committee on Taxation, except that the ITEP Model adds state-by-state estimating capabilities.
Note to editors:
The ITEP study, "Who Pays? A Distributional Analysis of the Tax Systems in All 50 States," is available at http://www.itepnet.org/whopays.htm.
This press release, including the data summary, is available at links at left or www.ocpp.org/2003/nr030107.htm.