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Oregon taxes favor wealthy but less so than most other states

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A report by a think tank on taxes found that the lowest-income Oregonians paid 12% of their income on taxes compared with 10.4% for the wealthiest residents

BY:  – JANUARY 11, 2024 ||OREGON CAPITOL CHRONICLE

Oregon’s tax system favors the wealthy but not as much as most other states, according to a new national analysis.

The Washington, D.C.-based Institute on Taxation and Economic Policy found that Oregon’s tax system, including property taxes, is one of the least regressive in the country, ranking 42 among all 50 states and the District of Columbia. However, Oregon’s system still worsens growing inequality by taxing low-income residents at disproportionately high rates, the report found. The report, “Who Pays,” was published this month and is the group’s seventh edition of the analysis.

Analysts at the think tank found the lowest-income Oregonians paid 12% of their incomes in taxes, more than any other bracket. The wealthiest 1% of Oregonians paid an average 10.4% in taxes.

For comparison, the average lowest-income taxpayer in the U.S. paid 11.3%.

It’s “encouraging” to see Oregon among the country’s least-regressive tax systems, said Daniel Hauser, deputy director of the Oregon Center for Public Policy. But he said comparisons don’t matter much to a low-income Oregonian who is still over-taxed.

“Our taxes should reduce inequality. Our taxes should be a force for good,” he said.

The report found that Florida is the most regressive tax jurisdiction, followed by Washington state, which relies heavily on sales and property taxes that disproportionately hit middle- and low-income taxpayers, according to Carl Davis, research director for the taxation think tank.

The most progressive jurisdictions were Washington D.C., Minnesota and Vermont.

Davis, who lead the research project, said analysts took into account almost all state and local taxes to see their cumulative effect on taxpayers. The project didn’t include federal taxes, which are generally more progressive, he said.

Davis said that Oregon’s system is more equitable than most others because the state is sales-tax free and collects personal income taxes that become progressively higher for larger earners.

However, he said Oregon has work to do to make the system more fair.

“Oregon is doing better than average. But that’s cold comfort given just how regressive the average state is. If Oregonians want their state to be progressive – which a lot of people do – they’re not there yet,” Davis said.

The report also noted that regressive taxes “risk worsening the racial wealth divide.” Nationally, the median Black and Hispanic household respectively own 84% and 78% less wealth than white households do. Closing the gap “will require a concerted effort across policy areas at all levels of government,” not just fair tax policy, the report says.

Davis cited polling that Americans generally think the wealthy pay too little in taxes.

The report notes that states can alleviate unfair tax burdens on low-income residents by creating or expanding tax credits, including a child tax credit or an earned income tax credit. Oregon now offers both after Gov. Tina Kotek signed the Oregon Kids Credit into law last year. Families earning less than $30,000 per year can claim a $1,000 credit for each child younger than six years old.

 

State lawmakers passed the credit last year after a short-lived federal child tax credit expired in 2022, which spurred the biggest spike in poverty seen in 50 years.

“In Oregon, we care about creating a fair and equitable tax system,” Sen. Mark Meek, D-Gladstone, said in an email. “I’m proud of the work we have done so far, including implementing a historic child care tax credit in 2023.”

However, Oregon lawmakers watered down the new state credit during the 2023 legislation session to benefit less families. Davis also noted that Oregon’s Earned Income Tax Credit is one of the lowest in the country among states that offer it.

Davis and Hauser said lawmakers should beef up the tax credits. Hauser also called for the creation of a new tax bracket for millionaires.

State Rep. E. Werner Reschke, R-Klamath Falls, sponsored a bill last year to overhaul Oregon’s tax system and create new income tax brackets with lower rates. The bill died in committee.

“(The bill) would have been a win for all Oregonians, but especially for Oregonians with lower incomes,” Reschke said.

Hauser said the proposal would have caused major revenue losses for the state government.

Grant Stringer

Grant Stringer is a freelance journalist in Oregon who writes for national newspapers like the Washington Post and outlets in the West, including the Capital Chronicle and the Oregonian/OregonLive. He specializes in features, solutions journalism and social policy stories.

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