The Forgotten Tax Day Story
Because Tax Day is the deadline for filing income tax returns, discussions that day tend to focus on the income tax. Other important components of Oregon’s overall tax structure get overlooked.
Those oft-ignored components weigh more heavily on the poor than on any other income group — so much so that they turn Oregon’s overall tax structure upside down. When you take into account all state and local taxes as a share of income, those with the least contribute the most, while those with the most pay the least.
It's true that under Oregon's income tax system, tax rates increase the higher one goes up the income ladder. That's good, because taxes ought to be based on ability to pay.
But the income tax is only one component of Oregon's tax structure. Though the state of Oregon does not levy a general sales tax, it collects excise taxes such as gasoline, utility and tobacco taxes. Local governments, meanwhile, collect property taxes, special purpose taxes and excise taxes. All of these hit poor families harder than any other income group, because property and excise taxes are not based on ability to pay.
By one estimate, if you divide Oregonians into five income groups, the lowest earning fifth on average devote 8.7 percent of their income to state and local taxes. The wealthiest 1 percent of Oregonians, on the other hand, on average pays 6.6 percent of their income in state and local taxes. That turns on its head the principle that taxes ought to be based on ability to pay.
This calculation does not take into account that Oregon also relies heavily on charges and fees. Consider the vehicle registration fee that drivers pay. Then there are the tuition fees to attend state colleges and universities, which have risen sharply over the years. Fees Oregonians pay generally take a bigger share out of the paychecks of low-income and middle-class Oregonians than of wealthy Oregonians.
Nor does the calculation factor in Oregon's reliance on the lottery. State economists expect that in the current budget period the lottery will bring in more revenue than the corporate income tax. Yes, lottery players — the hopeful-despite-awful-odds, the addicted and the desperate — who gamble on the lottery together will contribute more to Oregon's coffers than Intel, Bank of America, Nike and all other corporations doing business in the state combined.
Though technically not a tax, the lottery does fund public programs, including schools, that otherwise would need to be scaled back, scrapped or paid for through taxes or fees. Adding the lottery into the calculation of who pays under Oregon’s tax system would push the system even more upside down.
So, when lawmakers talk about reforming Oregon’s tax system, one of the most pressing issues they ought to address is how to make Oregon’s overall tax system one based on ability to pay. In other words, how to make it progressive.
What steps could lawmakers take in that direction? They could boost Oregon’s Earned Income Tax Credit, which would efficiently lower the taxes paid by poor and near-poor working families with kids. They could end the tax subsidy for people buying million dollar homes. They could enact a circuit breaker program to help families whose property tax payments represent a large portion of their income, such the popular Homeowners' and Renters' Refund Program (HARRP) killed by Measure 5. The list goes on.
As important as the income tax is to Oregon's tax structure, it is only one component. Making the income tax more progressive and reforming other components are necessary to turn right side up a state and local tax system that weighs more heavily on the poor than on any other income group.