Oregon Taxes Low-Income Workers More Than Most States

News Release
March 15, 2000

Oregon taxes the incomes of low-income working families at higher rates than most states, according to a report released today by the Center on Budget and Policy Priorities, based in Washington, D.C. The tax burden borne by working families earning slightly higher than poverty incomes is especially heavy in Oregon compared to other states.

"The majority of states with income taxes exempt families in poverty," said Michael Leachman, a sociologist and policy analyst at the Oregon Center for Public Policy. "Oregon, though, continues to tax the poor. Moreover, the State taxes families earning slightly above poverty at one of the highest rates in the country." A two-parent family of four in Oregon earning $10.23 an hour can expect to pay $679 in state income taxes, an amount exceeded in only two other states and the District of Columbia. "Reducing the tax burden on Oregon families with low incomes would honor work and help these working families to succeed," said Leachman.

Related materials:

Oregon Fact Sheet (PDF)

Poor Families in Most States Pay Less Income Taxes Than in the Past, But Substantial Burdens Remain, Center on Budget and Policy Priorities, March 15, 2000

Besides choosing to exempt the poor from taxation, nine states go further by providing tax credits that refund money to families with no tax liability. Oregon provides an earned income tax credit for low-income families, but the State does not allow the amount of the credit to exceed a family's tax liability. "Other states that claim to be welfare reform leaders, such as Wisconsin," said Leachman, "reward work by boosting take-home pay through a refundable earned income credit. Doing so helps low-income families offset child care and transportation costs typically associated with working."

The tax burden on families earning low incomes in several other states is dramatically less than in Oregon. In Vermont, for instance, a single-parent family of three earning poverty-level wages can expect to receive $910 from the state as a refund. In Oregon, a family earning the same wages would pay $67. In California, no single-parent family of three earning less than $33,700 pays state income taxes. In Oregon, the threshold is $12,400.

Some states with more progressive income tax structures also have a sales tax, while Oregon does not. This fact offsets somewhat the differences between Oregon and other states. Sales taxes typically consume a higher proportion of the incomes of poor people than of wealthier people, making sales taxes "regressive." Because Oregon does not have a sales tax, the overall tax structure is less regressive than it otherwise would be. At the same time, Oregon does have excise and property taxes, both of which increase the proportional burden of the poor. "Compared to other taxes," said Leachman, "the income tax is structured in a way that makes it relatively simple to target tax relief to low-income families."

This study of state income tax burdens comes at a critical time for political decision-making in Oregon. In November, Oregon voters likely will choose whether to exempt all federal income tax payments from state income tax liability, an initiative being championed by Oregon Taxpayer's United director, Bill Sizemore. An alternative being offered by the Legislative Assembly would increase the amount of federal income taxes that could be exempted from state tax from $3000 to $5000. "Prior analysis by the OCPP indicates that the poorest 40 percent of Oregonians would receive no tax relief from the Legislative Assembly's alternative initiative," said Leachman. "Sizemore's proposal is even more skewed to wealthy families and delivers no relief to the poor."