Oregon State and Local Taxes Hit Poor and Middle Class Harder than Rich, Study Finds

News Release
April 24, 2008 Download PDF

Oregon state and local taxes take a bigger bite out of the pocketbooks of poor and middle-class families than those of wealthy families, according to a new analysis released today by the Oregon Center for Public Policy (OCPP).

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Oregon State and Local Taxes Hit Poor and Middle Class Harder Than Rich, Study Finds (PDF)

Related materials:

OCPP's latest analysis of who pays Oregon State & Local Taxes (PDF).

The figures were compiled for OCPP by the Washington, DC-based Institute on Taxation and Economic Policy. OCPP is presenting the information today to a state task force examining how to restructure Oregon’s tax system.

“Oregon’s tax system is upside down,” said OCPP policy analyst Michael Leachman. “A tax system promotes opportunity when it is based on ability to pay. But in Oregon, those who can afford to pay more wind up paying the smallest share of their income.”

Adding up all state and local taxes, Oregon’s low-income families had an effective tax rate of 9.2 percent, compared to an effective rate of 7.8 percent paid by Oregon’s wealthiest 1 percent of families.

The effective tax rate paid by Oregon’s wealthiest families falls further, to 6.7 percent, when federal deductions for state income and property taxes are taken into account.

Though faring better than the poorest families, middle-income families in Oregon are also paying a larger share of their income than the wealthiest families. Families in the middle had an effective tax rate of 8.4 percent before federal tax offsets and 7.9 percent when factoring in the federal deductions.

According to Leachman, the bigger impact on poor and middle-class incomes is due to the income tax system going easy on the wealthy and to state and local property taxes and excise taxes, such as gasoline and cigarette taxes, eating up a larger share of the income of families in the middle and bottom than of those at the top.

Oregon’s wealthy don’t pay significantly more in income taxes because Oregon’s income tax brackets and rates are flat compared to the federal system and the wealthy can fully use Oregon’s subtraction for federal income taxes paid when calculating taxable income, said Leachman.

Even though the wealthy tend to own more valuable homes, the wealthiest 1 percent of Oregon families paid only 1.2 percent of their income in property taxes, compared to 2.6 percent for middle-income families and 4.6 percent for the poorest families.

The analysis comes as a task force created by the state legislature and appointed by the governor is reviewing Oregon’s tax system. The Revenue Restructuring Task Force, which includes as one of its members OCPP executive director Chuck Sheketoff, is expected to issue its recommendations this November for the 2009 legislature.

Among the key changes recommended by OCPP is making our tax system more fair by expanding the Earned Income Credit, a tax credit that’s targeted at boosting the income of low-income working families.

“The task force has a great opportunity to respond to the imbalance in our tax system and foster opportunity for low-income working Oregonians,” said Sheketoff.

The Oregon Center for Public Policy is a non-partisan research institute that does in-depth research and analysis on budget, tax, and economic issues. The Center’s goal is to improve decision making and generate more opportunities for all Oregonians.