Editorial: How the Poor Pay Taxes

Register Guard
November 20, 2011

In most states, sales taxes are a heavy burden

The Oregon Center for Public Policy, a left-leaning think tank based in Silverton, is drawing attention to a study that ranks Oregon’s income tax system among the nation’s most regressive — that is, it places a disproportionate burden on the poor. The study makes a valid point, as far as it goes — but it doesn’t go far enough.

Oregon’s income tax is regressive, but the state has no sales tax. Sales taxes tend to be highly regressive, so the lack of one makes Oregon’s tax system as a whole more fair than an exclusive focus on the income tax suggests.

The Silverton group cites a study by the Center on Budget and Policy Priorities showing that Oregon levies heavier income taxes on families below the poverty line than all but 32 of the 42 states that have income taxes. For two-parent families of four with incomes of $27,893, or 125 percent of the poverty level, Oregon’s income taxes are the nation’s third-highest.

The non-partisan Institute on Taxation and Economic Policy, however, took a broader look at Oregon’s tax system. Its study concurred that Oregon’s income tax is regressive: Before voters added a new top bracket for high-income people in 2010, more than 70 percent of Oregon income tax filers paid taxes at the top marginal rate of 9 percent. The average for states with income taxes is 25 percent, meaning that three-quarters of taxpayers pay less than the top rate.

The institute also examined the impact of state and local sales taxes, excise taxes and property taxes. It found that “nearly every state and local tax system takes a much greater share of income from middle- and low-income families than from the wealthy.” In Washington state, for instance, the poorest 20 percent of residents pay 17.3 percent of their incomes in state and local taxes, while those taxes take only 2.9 percent of the incomes of the top 1 percent.

In Oregon, the disparity is much more narrow: The poorest 20 percent pay 8.7 percent of their income in state and local taxes, while the richest 1 percent pay 6.2 percent. The difference is that Oregon has no general sales tax.

Oregon does levy special excise taxes on such things as gasoline, alcohol and tobacco. These taxes tend to fall hardest on poor people. The institute reports that taxes on gas, beer and cigarettes take 1.6 percent of poor families’ income, but only 0.07 percent of the richest families’ incomes.

Sales and excise taxes are “very regressive,” the institute concludes. “Poor families pay almost eight times more of their incomes in these taxes than the best-off families, and middle-income families pay more than four times the rate of the wealthy.”

An ideal tax system would rely on several taxes, and use revenue from each to offset the worst features of the others. Instead, Oregon relies heavily on a regressive income tax. But its lack of a general sales tax results in a tax system that is nearly flat — and far less regressive than most others.

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