Oregon continues to tax the incomes of low-income working families at higher rates than most states, according to a report released today by the Washington, D.C.-based Center on Budget and Policy Priorities. Oregon families with incomes at or slightly above poverty face especially heavy tax burdens compared to other states.
“The majority of states with income taxes exempt families in poverty,” said Charles Sheketoff, the executive director of the Oregon Center for Public Policy. “In contrast, Oregon continues to tax the poor heavily. In addition, the State is in the top five for taxing families earning slightly above poverty.”
A two-parent family of four in Oregon earning about $10.58 an hour, or about 125% of the federal poverty level, can expect to pay $720 in state income taxes, an amount exceeded in only two other states, while the tax on families of three at 125% of poverty is $403, the fifth highest in the nation.
“Oregon is doing a disservice to its low wage workers,” said Sheketoff. “We claim to value work as the way out of poverty, yet we continue to tax low-income families deeper into poverty.” Oregon’s tax on a single parent with two children working at minimum wage is the 8th highest in the nation.
Sheketoff noted that the tax on the poor is particularly troubling given the dramatic increase in the number of working families with children who are in poverty. According to Census data analyzed by the Silverton-based research institute, from the late 1970s to the late 1990s the share of working families with children who were poor doubled. More than one in seven working families with children was still in poverty in the late 1990s.
Eleven states provide tax credits that give refunds even to families who owe no taxes. 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. “Ten of the eleven other states reward work by boosting take-home pay through a refundable earned income credit,” said Sheketoff. “Doing so helps low-income families offset taxes typically associated with work, such as employment taxes and gas taxes.”
The tax burden on families earning low incomes in several other states is dramatically less than in Oregon. In Vermont a single-parent family of three earning poverty-level wages can expect to receive $1,174 from the state as a refund. In Oregon, a family earning the same wages would pay $75, the 10th highest income tax burden in the nation. In California, no single-parent family of three earning less than $35,000 pays state income taxes. In Oregon, the threshold is $12,700, the 14th lowest in the nation.
The report focuses on the income tax, but many states (including states with higher income tax thresholds, such as California) have other taxes that disproportionately impact the poor. Sales taxes, excise taxes, and property taxes typically consume a higher proportion of the incomes of poor people than of wealthier people, making the tax structure overall more regressive (the percentage of income paid as taxes decreases as income increases). Without a sales tax, Oregon’s overall tax structure is less regressive than many states, but the progressivity of its income tax does not offset the regressivity of the property tax and excise taxes such as the gas tax.” Oregon’s overall tax structure burdens the poorest more than the wealthiest,” said Sheketoff.
This study of state income tax burdens comes at a critical time for political decision-making in Oregon. Last November, Oregon voters accepted a legislative proposal to increase the amount of federal income taxes that could be deducted from income for state tax purposes. The poorest 40 percent of Oregonians will receive no tax relief from this change.
The Oregon Legislature is considering bills to make the state earned income credit refundable, lowering the tax burden on the lowest income workers in the state, and to increase the earned income credit, which would raise Oregon’s tax threshold (House Bills 2032 and 2293). Oregon experienced improvement in its tax threshold and burdens on low income taxpayers in 1997 as a result of the creation of the state earned income credit by the 1997 Legislative Assembly.
“Oregon’s reliance on the income tax makes it easy to target tax relief to low-income working families,” Sheketoff said.