Overcoming Tax Myths Key to Oregon's Future

April 1, 2002By Jeff Thompson

Tax day has come and gone, but, as the Legislature prepares for a third special session this year, Oregon still does not have enough money to meet the taxpayers' demands for good schools, an expanded Oregon Health Plan, better roads and bridges, in-home care for the aged and disabled, and a host of other state services.

The Legislature refuses to raise any revenues at all, even in the face of Oregonians' support for increases in tobacco, beer and wine taxes and the elimination of tax breaks for the wealthy.

With each special session, our revenue shortfall grows. Cleaning out every pocket of one-time money that can be found, the Legislature has dug the budget hole deeper, ensuring that a major revenue shortfall will plague the next governor.

The incessant mantra of heavy and rising taxes is wrong. The tax burden in America and in Oregon is not as high as anti-government activists and their talk radio shills claim. In fact it is falling.

A recent review of the actual middle-income federal tax burden (including income, payroll, excise, and other taxes) shows that it is at its lowest point in at least 22 years. It might be the lowest rate for an even longer stretch, but the Congressional Budget Office data only go back to 1979.

Middle-income households now pay 16.3 percent of their income to federal taxes.

In Oregon, the Legislative Revenue Office calculates that middle-income households pay 10.8 percent of their income in state and local taxes. After remaining roughly constant for most of the last 20 years, Oregon's tax burden has also been falling recently.

Adding up the federal and state and local tax bills, the typical Oregon household pays roughly 27 percent of its income in taxes. This is a far cry from the "they're taking half of my income in taxes" protests often heard on right-wing talk radio.

Credible analysis of tax data reveals a declining burden. So, where are the anti-government activists and their radio mouthpieces getting their misinformation?

In part, they rely on figures from the avowedly anti-government Tax Foundation in Washington, D.C. The Tax Foundation, however, overstates the tax burden. Among their deceptions, they include capital gains taxes, but not capital gains income, and count as "taxes" the rental payments that private parties make for use of government owned property.

The big ruse is that the Tax Foundation tries to convince typical Americans that they share the tax burden of the very rich. They use an "average" tax payment that is far larger than what most households face because of progressive income taxes. In Oregon the typical taxpayer pays about half the average income tax bill.

Another deception often used is that total taxes collected take a larger share of GDP than at any time in history. Like the Tax Foundation's phony numbers, this measure overstates the tax burden by excluding capital gains income but counting capital gains taxes. For this and other reasons, even the deeply conservative - but honest - Alan Greenspan acknowledges, "you can't use tax receipts over nominal GDP as a tax rate."

Also, while total federal receipts, including some non-taxes, absorbed just under 20 percent of GDP in 2001, this is no different from levels seen in early 1980s, late 1960s, or mid-1940s.

The federal government's share of GDP has remained about the same, bouncing cyclically around 18 percent, for most of the last 55 years. The anti-government opposition to taxes reveals a longing for a society that we haven't had since before World War II. The anti-governmentalists apparently want to take us back to the days of the Great Depression, back before the existence of the American middle class or strong military, and to the days when masses of the elderly withered in poverty for lack of Social Security.

Oregon can afford to provide top-quality education for the state's children, repair our crumbling roads and bridges, and provide health insurance to the thousands that cannot afford it.

To make the tough decisions necessary to meet those needs, though, we need to get a clear grip on our actual tax burden: not that high and not rising.