8 things to know about Oregon’s tax system

8 things to know about Oregon’s tax system

8 things to know about Oregon’s tax system

Tax Day is here. There’s no better moment to reflect on our tax system — the system by which “we pay for civilized society,” as US Supreme Court Justice Oliver Wendell Holmes pointed out nearly 100 years ago.

To mark Tax Day, we share eight things to know about Oregon’s tax system.

1. The tax system pays for the things that matter to Oregonians

Taxes are essential for our communities to thrive. Taxes pay to educate our children, to care for our seniors, and for many other services that we alone cannot shoulder.

In Oregon, there is no more consequential tax than the personal income tax — the taxes we pay out of our earnings. It brings in more than four in five dollars that fund what people usually refer to as the “state budget,” the General Fund & Lottery Funds Budget. More than 80 percent of the state budget goes to three key areas: education, health and human services, and public safety.

2. Oregon’s personal income tax is mildly progressive; the entire tax system is not

From Jesus to Adam Smith, there is wide agreement that a fair tax system is one based on the ability to pay — one that asks proportionately more of a rich person than of a poor person. That’s called a progressive tax system.

Oregon’s personal income tax is progressive, but mildly so. Tax rates start at 4.75 percent and top out at 9.9 percent. The thing to note is that the current system asks low-income families to pay the same rates as those who earn a lot more. For example, the 8.75 percent rate kicks in at $18,900 of taxable income. That rate stays in place until a couple reaches $250,000 of taxable income. This means a lower-income family with just $20,000 of taxable income pays the same tax rate on its last dollar of income as a family making a quarter-million dollars.

When you consider not just income taxes, but all the taxes collected by state and local governments, the tax structure turns upside-down. It is no longer progressive. While the personal income tax is based on a tax filer’s ability to pay, Oregonians pay other taxes not connected to how much someone can afford to pay. In addition to property taxes, they also pay excise taxes on things like gasoline, alcohol, and tobacco. When you add up all state and local taxes, Oregon’s tax structure is regressive – meaning Oregonians with low-incomes pay a higher share of their income in taxes than the richest Oregonians.

3. When it comes to raising taxes, the minority rules

If the Oregon legislature wants to cut taxes in Oregon, a simple majority will suffice. And if legislators want to create a new tax giveaway for the well-off or a new tax subsidy for corporations, again, a simple majority is enough.

But if you want to raise tax rates on the rich and big corporations to fund schools or other essential services, then you need three-fifths of each chamber of the legislature to agree. In other words, a minority of lawmakers — more easily captured by special interests — can block the will of the majority.

4. The tax system is not race-neutral

In 1862, not long after joining the Union, Oregon enacted a tax on people of color. If you were Black, mixed-race, Hawaiian, or Chinese, you had to pay a tax not levied on white Oregonians. If you couldn’t afford it, you paid it off by performing road work.

Though Oregon tax law is no longer explicitly racist, it continues to entrench and even deepen racial disparities that are the result of past and present policy choices.

To address the racial inequities in our tax system, it helps to have better information. Right now, the Oregon legislature is considering Senate Bill 1 that would add an optional form to Oregon’s personal income taxes, allowing people to select up to three racial and ethnic identifiers from nearly 40 definitions. Understanding the extent to which the tax system, and particular tax provisions, impact racial disparities can help us find ways to reduce those disparities.

5. The tax system can be a powerful tool to advance economic and racial justice

The tax system both reflects the prevailing economic forces of its time and helps shape economic outcomes. In recent decades, income inequality in Oregon has climbed to historic levels. Not coincidentally, business taxation has declined. And at the federal level, tax rates for the superrich have collapsed.

Lawmakers need to recognize the damage caused by growing income inequality and enact policies that lift up all Oregonians, not just the richest. One way to do so is to not wait to tax capital gains – the profits from the sale of stocks, bonds, and other assets. Under current law, workers see their income taxed on a regular basis, while holders of capital assets don’t pay taxes on their gains until they sell. This allows the wealthy to avoid taxes for years, and sometimes forever. If they die before selling, the assets pass on to heirs untaxed.

6. Oregon’s “kicker” tax rebate works against economic justice, but that can be fixed

As working families across Oregon struggle with rising costs and meager wages, Oregon is on course to send massive tax rebates to the richest Oregonians. The Oregon Constitution requires the state to send, or “kick,” unanticipated tax revenue back to tax filers if revenue comes in 2 percent or more above what state economists forecast two years prior. The kicker is not the result of tax filers overpaying their taxes; it’s a forecasting error. As of this writing, state economists expect a record-shattering $3.9 billion “kicker” rebate. If this holds, the richest 1 percent of Oregonians will get a rebate of $42,000 on average, while the lowest-paid workers will get about $60 on average.

The kicker is in the state Constitution, but it’s not written in stone. There is a simple way to make the kicker work better for the vast majority of Oregonians: give everyone the same amount.

7. Corporations hide profits overseas to avoid taxes, but that can be fixed

To avoid paying taxes, multinational corporations artificially shift billions in profits earned in the U.S. and Oregon to places that levy little or no corporate income taxes. When big corporations avoid taxes, it means either that there are fewer resources for schools and other essential services or that someone else — families and small businesses — foots the bill through higher taxes.

Oregon can prevent multinational corporations from shifting profits overseas and create a more level playing field for Oregon businesses by enacting “complete reporting”. Instituting complete reporting could raise an additional $164 to $393 million in each two-year budget period — a conservative estimate. Nearly all of the revenue would come from foreign, out-of-state, and rich investors.

8. Tax system is a tool for reducing poverty

The tax system is an effective tool to reduce poverty. The 2021 expansion of the federal Child Tax Credit reduced child poverty “immediately and substantially”. Despite this historic breakthrough, Congress let the expansion expire. Oregon lawmakers now have the opportunity to help our kids grow up more economically secure and enjoy a real opportunity to thrive through the Oregon Kid’s Credit. This legislation would establish a state child tax credit that would help Oregon families struggling with the rising costs of raising kids

Our tax system plays a vital role in all of our lives. It’s up to us to push for the changes needed to make it work better for everyone.

Picture of Nhi Nguyễn

Nhi Nguyễn

An immigrant and first-generation college student, Nhi understands the profound impact of public policies on under-resourced communities. Her experience motivated Nhi to pursue a degree from Reed College’s Policy Studies program. She comes to OCPP with a background in education policy research and social justice advocacy. In her free time, she hunts for the best Bún bò Huế in Portland, eats a slice or two of durian cake, or pretends to exercise.

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