Admiring Oregon's Income Tax

For decades, a number of Oregon's politicians have pressed for a sales tax.  The oft-stated reason is that Oregon is too dependent upon its income tax.  More recently, the reasoning has been refined to note that a sales tax would smooth the peaks and valleys in revenues that income taxes produce. 

The majority of Oregonians believe (and some advocates are honest enough to admit) that a key motivation of many sales tax proponents is to raise taxes.  It greatly frustrates many of Oregon's liberals that their political dominance in the state doesn't enable them to dictate tax policy. 

Meanwhile, many of Washington's liberals have long pressed for an income tax, asserting that it would reduce how regressive their high sales tax is.  Knowing that Democratic dominance in Olympia wouldn't translate into approval of an income tax, the Legislature there (including several Republicans) raised lots of other taxes this year.  They increased the cigarette tax, liquor tax, gas tax, and vehicle fees, all of which are regressive (though the latter two can be mitigated by use of public transportation...not much solace for the rural poor).  The Washington Legislature also reinstated the estate tax. 

Most of the extra money is going towards a huge transportation bill.  Not that the repairs and upgrades to Washington's highway system aren't needed, but why is it necessary to hit the poors' pocketbooks so hard to get this work done?  What's happened to the party that's supposed to represent the poor?  The backlash to the increased taxes and fees has begun, led by some in the GOP who claim it's a

"a sadistic attack" on the working poor and middle class. 

...but evidently not the rest of the poor.

Tax advocates in both states figure that their tax systems are flawed because they only have two legs of the mythical three-legged tax stool (the third leg being property taxes).  Both states have limits on property tax increases that gall tax proponents...so I guess that leg of the stool is stubby.  Here's how advocates of the poor attack Washington's sales tax as part of their effort to gain an income tax.  Notice how they admire the fairness of Oregon's system of taxation. 

Buy a pair of socks, a package of diapers or a tube of toothpaste in the Seattle-Bellevue-Everett area, and you'll pay one of the highest sales taxes in the nation--nearly 9 percent on purchases of most consumer goods.

Washington is one of only seven states that do not levy a personal income tax, depending heavily on retail sales taxes and property taxes to fund its public schools, roads and prisons.

That combination of taxes takes an exceptionally big bite out of poor families' income and has earned Washington the discomforting distinction of having the most regressive tax structure in the nation.

According to the Institute on Taxation and Economic Policy, a Washington, D.C.-based research organization, Washington families living at the federal poverty level pay 17 percent of their incomes in state and local taxes, whereas the highest-income families pay 3 percent.

Compare that with neighboring Oregon, where taxes are equally distributed across all income groups. The tax-burden gap between the richest and poorest families there is 3 percent.

Here's who the Institute on Taxation and Economic Policy is, in its own words:

The Institute on Taxation and Economic Policy (ITEP) is a non-profit, non-partisan research and education organization that works on government taxation and spending policy issues. ITEP's unique resources and capabilities enable it to provide policymakers, advocates, and the public with accurate, useful, and timely information regarding state and federal tax systems and how they affect taxpayers at different income levels.

ITEP's mission is to keep policymakers and the public informed of the effects of current and proposed tax polices on tax fairness, government budgets and sound economic policy.

The term "non-partisan" has become a red flag, often a phony claim of objectivity.  Looking at the organizations that fund ITEP gives one a better idea of their bias.  Examples include the Ben and Jerry Foundation, Ford Foundation, National Education Association, Public Welfare Foundation, and Streisand Foundation.  Non-partisan?

Here's the document which shows how Oregon's various income groups pay about the same percentage of their income in taxes.  This document states that the progressive features of Oregon's taxes are its lack of a sales tax, non-refundable earned income tax credit, and indexed tax brackets and exemptions.  The lone regressive feature noted is that we get to deduct the federal income taxes we pay on our Oregon income tax. 

Evidently that's why progressives who support big government but feel that a sales tax would be regressive (like the OCCP):

- Support higher business taxes in Oregon (but lack a coherent explanation of how our supposedly great business climate and low business taxes produce such high unemployment),

- Constantly tell us how low our tax burden is (while never addressing our high and sometimes regressive fees), and

- Studiously ignore how the increasing amount of revenue necessary to support the ravenous PERS system is taking ever-growing amounts of money from programs that support the needy, our schools, etc.

That last bullet is the elephant in the room here in Oregon.  The government and teachers' unions get the first drink at the revenue trough (and a huge drink it is), and the needy, students, etc. get the dregs.  The Democrats' solution: raise revenues so there will be more money left over after paying their union supporters.  The Republicans' solution: hold the line on taxes (and occasionally fees), and...? 

Both parties share the blame for screwing the poor in Oregon. 

Back to original article.

"Compared to low-wage workers in other states, (poor families in Washington) have got stronger headwinds holding them back," said Jared Bernstein, an economist with the Employment Policy Institute in Washington, D.C.

Relying on high sales taxes is considered regressive because low-income families spend so much more of their incomes on basic necessities than do better-off households.

Although Washington's sales tax exempts food and medicine, softening the effect on the poor, it also exempts most services, such as massages, manicures and legal services, which are used more often by people with higher incomes.

The headwinds for the poor in Oregon are government PERSonnel costs rising faster than inflation (including healthcare), persistently high unemployment, and two political parties more concerned about acquiring and fighting over power than providing good government.

But, it's nice to know that some progressives admire our lack of a sales tax. 

Comments

[ron ledbury]

I just wish some fancy Republican might seize the opportunity to raise the standard deduction. The big government advocates always juxtapose the capital gains reduction folks against the interest of the poor, via public services only.

A reduction of 200 million or so in collections from the poor could move the standard deduction up pretty fast and thus have a broad sweep over many poor voters. It would also test the mantra of big government advocates to demand certainty in "replacement revenue" for any tax break.

If buying votes through transfer payments for so-called work (pay above market rate) or through market distortions favoring company x or y (through the infinitely malleable definition of jobs, jobs, jobs) is OK then the poor should simply be partially excused from the game, unless someone can tell me how the selective gifting will benefit ALL of the poor rather then maybe just some of the poor.

I still need to "frame" the PERS folks, a true framing mind you, as captive depositors in an unsound state bank (its true character, for the benefit of a unlawfully privileged few) that needs to be shut down. The appetite for adding benefits through creative devices such as purchasing credit years and such just seems to roll along.

If tax revenue projections have gone up by 200 million then now would be a good time to raise the standard deduction so as to roll the revenue projections back to what the Republicans seem willing to spend. This would make more sense to me than a rainy day fund or an adjustment in capital gains; and it buys more votes.

(Food for thought. Does your post belong in the human nature category, in your nature series?)

[RoguePundit]

That's an interesting idea on the $200 million, matching the increase in revenue projections to the standard deduction. That would bring up all kinds of interesting debates, complaints, etc., and do some good to if anybody could pull it off.

I can go for that framing of PERS, though some of the captives are certainly trying to perpetuate their royal captivity.

Human nature? Hmmm. That could be some depressing reading if analyzing the topic relative to Oregon's politics.

[Alan DeWitt]

Non-partisan does not mean disinterested. It only means that it is not associated with any particular party. Of course, a non-partisan group may share some common goals or ideals with one or more parties, but that's pretty much unavoidable.

That said, I don't know squat about this particular group.

[ron ledbury]

"royal captivity" . . . but not for tier-three.

That is, if one believes that the pool of revenue and fees has a theoretical limit, . . . a limit we have already met.

I had referenced the Chiles case to spark this idea, the idea that all manner of public interest does not apply any more (for the sake of argument) and that the only thing remaining is to just fight any way any how for the resources. The court in Chiles explored the duty of majority shareholders to minority shareholders. That is, even in a for-profit entity the folks who have power cannot fully ignore the rights of minority interests. By analogy even if PERS beneficiaries out numbered non-PERS beneficiaries, and had absolute control of the legislature and the executive, and treated the budget in like manner to that today, with a focus only on revenue enhancement, then the judiciary could still say that the majority shareholders in Oregon's taxing authority still owe a duty to the minority shareholders in the divvying up of those tax receipts. It was to flip the analysis from one of a common burden on taxation to an exploration of the manner of distributing the gifts. It was posed, for the folks with brains, to mock the present lack of any self-restraint by the legislative and executive branches as well as the complete self-castration of the judiciary in refusing to even explore any grounds that might call the gifting as contrary to any and all elementary "public interest" examination.

The duty of the legislature when giving gifts should surely not be any less than that of a majority shareholder to minority shareholders. Have we reached a point today that is more excessive in its disregard for the poor than that of a purely profit oriented company, not for their workers, but for the minority shareholders? (We would need to isolate out the giving of stock options and such that simply dilute the interests of other shareholders. Which is not too different from public employee only pension plans really, in craftiness, and disregard for other shareholders.)

The Chiles case involved the leasing arrangements between the Fred Meyer store owners relative to the Fred Meyer land holders and, ironically, followed the OIC assisted KK&R buyout of Fred Meyers. I just wonder where the Fred Meyer trust gets its money, to support schools and such and to follow a script that excludes criticism of PERS. What should I make of the former Fred Meyer executive that was supposed to sit on the board for the TPG PGE deal? And the former Fred Meyer executive that is the lightening rod at Safeway? And on and on. What should I make too of the KK&R offer to sell the Fred Meyer stuff in total to someone like the OIC (old offer but I don't know how it panned out)?

I did not think it was too remote a comparison to make, even if not just for the legal reasoning angle but also for the curious set of facts that the court had addressed in the past. Call it a bit of cryptic telegraphing that it will all come out in the wash if just a few folks get an attack of guilt and spill the beans sometime before they die of old age. In this modern era of robber barons who will be looked upon as evil versus good in the history books? Are the Republicans blind or are they withholding their Ace in the hole for use later, do they not even know that they hold an Ace?

Sales tax, Income tax, Proerty tax, pah, it is all a distraction.

(Chiles case here.)

[ron ledbury]

Clarification: Chiles made it only to the appeals court level.

The Ace reference should be both an Ace and a Joker (or at least a court jester).

Jester and here too:

All jesters and fools in those days were thought of as special cases whom God had touched with a childlike madness—a gift, or perhaps a curse. Mentally handicapped people sometimes found employment by capering and behaving in an amusing way. In the harsh world of medieval Europe, people who might not be able to survive any other way thus found a social niche.

or this from the wikipedia link above

A jester could have a more political role as well. He could say some dangerous truth disguised as a joke or even criticize the ruler in subtle ways. Many legends and anecdotes portray fools as informal, cunning advisors. The expression "fool's license" is said to come from this custom.

I saw a bumper sticker recently that said "there is nothing left to do but smile, smile, smile."

Thanks for your interest in PERS. Some folks can't even crack a smile these days. For fear they might crack clear through as if they were like Humpty Dumpty or something.

[Jammer]

Republicans are also mulling the issues over at their propaganda organ.

[Jenson]

I'm always posting articles on BlueOregon in support of OCPP. Let me explain why:

- Support higher business taxes in Oregon

Because Oregon has an income tax, business don't pay tax on money spent. Cash outlays for growth are instant tax deductions. If you hold on to cash, you should pay more in tax because of the exponential impact of not turning that money through the economy. But why does low taxes equal high unemployment in OR? Well, we use to have one of the lowest a few years ago, but since we don't diversify our economy enough, we get hit hard when environmentalist pass anti-timber legislation or the tech sector drops off. You need government programs to help diversify. Are these working???

- Constantly tell us how low our tax burden is

Yes, it is low but if you look at all the other states that have low per capita taxes, you will see that their tax systems suck. Our tax burden is low because raising the income tax impacts too many people because we have no tax brackets. Raising the property taxes hurts people because we have no homestead deductions. I advocate that we don't try and raise taxes under the current system or we will aggravate the situation.

- Studiously ignore how the increasing amount of revenue necessary to support the ravenous PERS system

Well, there's not much we can do to people already vested under old laws. By law, you cannot simply reshape benefits on a whim. Going forward, we have gotten rid of the 8% guarantee, we have Tier II defined contribution benefits, and PERS investments have already rebounded significantly. Read the annual reports if you'd like to find out more on PERS. I would love to see more changes to PERS, but the problem can't be blamed on progressives. The problem stems more from stupid bureaucrats--and they live on both sides.

[RoguePundit]

Jenson,

I think OCCP's ideas make some interesting reading. I agree that we could use to revise some of our business taxes (something I've blogged on before). But there are a number of tax breaks that keep jobs in and bring jobs to Oregon...one has to be very smart about changing them. OCCP villifies the tax breaks too much (though I think Chuck Sheketoff has some valid complaints with Intel).

By the by, I've read the studies in detail that claim Oregon has really low business taxes. Lumping small businesses, large businesses, etc. under a single label shortchanges the debate. Small businesses, for instance, don't have that sweet of deal on taxes here in Oregon, which makes it harder for them to grow us jobs.

Government programs can help us diversify, as can sometimes getting the government out of the way. Thank goodness we look business-friendly compared to California.

I don't disagree with what you said about taxes, but you forgot to mention fees too. It's the bottom line--what we pay for government--that's what matters. There are far too many people, PACs, etc. that pretend our tax burden is equivalent to the total burden people bear to pay for government. I'm really sick of that intellectual dishonesty.

I don't blame PERS on just progressives; it's taken all sorts of politicians, brokers, etc. to get it this screwed up. But as Ron Ledbury can explain in detail, PERS can be reshaped...the Supreme Court decision did not prohibit that. Most politicians are avoiding the topic like the plague, regardless of party.

[RoguePundit]

And speaking of Ron,

Interesting about the Chiles case. Stock options make a fascinating analogy. It's like PERS is being given options on Oregon's revenue when it already owns a number of shares...the result is that the shares belonging to the other programs get diluted--so to speak. The poor, aged, students, etc. get diluted. And, it's supposedly our fault for not paying more for government.

If the Republicans know they have an ace/joker, I don't think they have the intellectual courage to use it. If they could frame the message coherently, could they get it out effectively with their current leadership? I have my doubts.

Ultimately, taxes are a distraction, but...

Any ideas how much that brokers, bondmen, etc. are making from the PERS funding/investing support?

[Bert]

I think the basic problem here is that they're failing to think more clearly on the issue of budget cuts.
Rather than trying to figure out how to squeeze more money out of people that pretty much already don't have it, why not figure out how to economize on all these state programs? What's the state's 2 year budget now, 11 billion dollars? Maybe it's time for a little bit of 'funding-lite'...rather than trying to finagle the tax code(s) for another million or so. Can't get blood from a turnip, can't get more money from people on low/fixed incomes unless you start seizing their property via property tax pressures. Both Washington and Oregon could stand to tune up their spending, in my view, cut spending for a couple years, pay down their state debts, then cut taxes long-term. A little sacrifice now, or a lot of obligation later. Decisions, decisions....

[Sid Leader]

I have "friends" in Vancouver who DODGE taxes every time they buy something worth more than a buck.

If they have to buy something more than a buck, they drive to the gross, dumpy WalMart in Oregon, fill up their 7 mpg SUV, and haul the goods back to Vancouver under cover of darkness to avoid paying the sales tax in Washington. The cops have two words for them: tax cheats.

These are the same people who complain about all taxes, meaning they will not stop whining about taxes until there are no taxes and only the strongest survive.

I'm a beast, so I'll win. Lars is weak. He'll lose. How about you?

[ron ledbury]

The qualitative harms are far greater than the commissions and investment banker fees might suggest.

[rtrek]

Don't confuse the general fund budget with the all-funds budget. Although the general fund budget is approximately 11 billion, the all-funds budget is now over 40 billion for a 2-year budget cycle.

Think you could adequately fund reasonable state services for 20 billion a year? I think so ... If you generously assume there are 4 million men, women, and children in this state, then total state spending per person, per year, is $5,000 and the vast majority of the population do not consume significant government resources.

Of course, as you all know, the crazy aunt in the basement is PERS and it's eating the state alive. While there are certainly other issues that significantly affect state spending, until the defined benefit plans is bled off and replaced with a simple, straight-forward, 401(k)-like defined contribution plan, the wrangling over state revenues and spending will never cease.

Personally, I will never support any form of new revenue or tax reform until the existing PERS plan is frozen and all new public employees are placed in a defined contribution plan just-like-the-rest-of-us.