Oregon slipped in national rankings of state income taxes on the working poor. The state begins taxing people at lower income levels and taxes the working poor more than two dozen other states according to a new national study. The report, by the Washington, D.C.-based Center on Budget and Policy Priorities, assesses the impact of state income taxes on low-income families in 1998. Forty-two (42) states and the District of Columbia levy income taxes.
The report focuses on income tax thresholds, the income level at which a family begins to owe taxes. The report also assesses the tax burden on working families with incomes at the poverty line, the “working poor.” The 1998 poverty line is expected to be $16,655 for a family of four and $13,001 for a family of three.
These findings come at a time Oregon lawmakers are considering whether to return about $194 million in income taxes collected beyond expectations (the 2 percent “kicker”), the bulk of which will be returned to Oregon’s wealthiest taxpayers. State lawmakers are also considering raising the gas tax and motor vehicle registration fees, both of which will have a disproportionate, adverse impact on low-income Oregonians.
Oregon’s income taxes on the working poor are in sharp contrast to the nine states that provide tax refunds to working poor families which help offset the impact on working poor families of state and local taxes. The nine states are Georgia, Kansas, Maryland, Massachusetts, Minnesota, New Mexico, New York, Vermont and Wisconsin. Ten states – Arizona, California, Connecticut, Maryland, Massachusetts, Minnesota, New York, Pennsylvania, Rhode Island, and Vermont – have income tax thresholds of $21,000 or higher for two-parent families of four, eliminating taxes for working families with incomes up to approximately 125 percent or more of the poverty line.
“Compared to these states our income taxes on the working poor are embarrassingly high,” said Anna Braun, a policy analyst with the Oregon Center for Public Policy.
OREGON HAS LOW TAX THRESHOLDS — “TARGETED TAX RELIEF” CALLED “FIX”
Oregon imposes income taxes on families with incomes well below the poverty line. Oregon’s tax threshold, the income level at which Oregon families begin paying income taxes, fell in relation to other states in the last year.
Oregon’s tax threshold for three person families is lower than in 24 other states. For four person families the tax threshold is lower than in 26 other states. A working single-parent with two children begins paying Oregon income tax at $12,300 per year, or $701 below the poverty line. The tax threshold for a two-parent, two-child family is $14,200 per year, $2,455 below the federal poverty level. For both three- and four-person households, Oregon’s tax threshold ranking among the states has slipped from 1997 to 1998.
“Oregon has the unfortunate distinction of being one of nineteen states that still taxes the income of working poor families,” said Braun. “We are a leader in reducing the size of our welfare caseload, but our welfare policy and tax policy are at odds. Tax policy and welfare reform policy should work together to make work pay.”
Oregon raised the tax threshold slightly in 1997 when it created a state earned income credit for the working poor. The earned income credit is five percent of the federal earned income credit.
Braun noted that “targeted tax relief” can raise the tax threshold above poverty. “Oregon could raise the tax threshold to the poverty level, provide targeted tax relief, and fix the problem by increasing the state’s earned income tax credit from 5 percent of the federal earned income credit to about 14 percent,” she added.
TAX BURDEN ON OREGON’S WORKING POOR
Of the 42 states that levy income taxes, Oregon has the ninth highest tax on poverty level two-parent families of four. Oregon did better in 1997 when it was ranked 10th highest. For a single parent with two children Oregon has the 14th highest income tax burden on income at the poverty line. Again, Oregon did better in 1997 when it was ranked 15th highest.
Although Oregon adopted an earned income credit and a working family child care credit in 1997, the credits are not refundable. The very lowest income workers do not receive the full benefits from the credits because they do not have sufficient tax liability.
“Refundable earned income and child care credits can help offset Oregon’s regressive property and excise taxes such as the gas tax,” said Braun. “Refundable earned income and child care credits are the simplest way to target tax relief to low-income working families to help them meet the costs of child care, transportation and other work-related expenses and become self-sufficient.” Braun noted that the Governor’s tax policy committee recommended making the state’s Working Family Child Care Credit refundable.
The Oregon Center for Public Policy noted that the study released today concentrates only on the state income tax, not the tax system as a whole. While Oregon has no general sales tax, its property taxes and excise taxes (such as the gas tax) make Oregon’s lowest income residents pay a greater share of their income in taxes than the wealthiest Oregonians. The overall tax burden takes into account the income tax, property taxes, excise taxes such as the gas tax, and the federal deduction offset.