Wednesday, January 27, 2010

Oregonians Decide that the Wealthy and Corporations Should Contribute More in Taxes

Some frankly amazing, to me anyway*, news out of Oregon on Tuesday. The Oregonian reports:
It looks like Oregon corporations and high-income earners will pay higher state taxes as voters weighed in Tuesday on two hotly debated measures. [...]

Measure 66 raises the income tax paid by households earning at or above $250,000 a year or individual filers who make $125,000 or more. Measure 67 raises the state's $10 minimum corporate income tax.

Together they generate an estimated $727 million, which has already been budgeted by the 2009 Legislature for public schools and other state services.

The tax measures were strongly supported by the state's teachers and other public employee unions. They argued that schools and public services would face damaging cuts.

A coalition of Oregon businesses, including the state's grocers, mounted a campaign to defeat the taxes, arguing that they would cost jobs at a time when the economy is already struggling.

This is a welcome bit of clarity out of the Beaver State after the muddled message of last week's Senate election in Massachusetts. Measures 66 and 67 will reduce the regressive nature of Oregon's state tax system (PDF), in which the poorest 20% of Oregon families, those making under $18,000 a year, pay 8.7% of their income in state and local taxes, while the top 1% of families, those making more than $417,000 a year, pay a state and local tax rate of 6.2%.

Unemployment in Oregon peaked at a crippling 12.2 % back in May 2009 but has since fallen back to a still-completely-unacceptable 11%. Without this rebalancing of the state tax code, that unemployment rate would likely have gone higher as state and local governments shut down services and shed employees.

Raising income taxes on the wealthy — instead of relying on the usual solutions of lotteries, casinos, or sales-tax hikes —is the fairest, most effective way to raise revenue while protecting jobs and vital public services like schools and health care. The political default position is always against higher taxes (after all, no one wants to pay higher taxes, other things being equal). It is never an easy matter to rebalance a tax code, even in good times. For progressives around the country facing state budget shortfalls and cuts in vital public services, the Oregon story ought to be investigated and the relevant lessons learned.

Thanks to YW Chong for the pointer.

UPDATE: The Oregonian, in a later dispatch, reports that the final margin of victory was big, 54 - 46. Also remarkable is that this is the first voter-approved statewide income tax increase in Oregon since the 1930s.

*I am not always the best guide to what is actually amazing.

Image by vcs.student. Used under a Creative Commons license.


Mike said...

Oregon residents don't pay sales tax. I can only assume that their income and property taxes are higher than other states. Passing these tax measures might not even be needed if the state had other revenue streams such as a sales tax.

C - Log said...

Yo Mike,

Excellent comment. You are thinking about the problem in exactly the right way: How does a state's mix of sales, property, and income taxes affect (a) the amount of revenue raised and (b) who pays.

The first thing I observe is that having a sales tax in place is not necessarily a good way to avoid budget problems. Most states have sales taxes, and yet most of those same states are in budget trouble, due to the way that the horrible economy of the last two years has depressed corporate and personal incomes, retail consumption, and property values, the three sectors that form the bulk of the tax base of a most states.

Even more important, from my personal political perspective, a sales tax hits a low or middle-income person much harder than a high-income person.

Imagine you need to buy a new refrigerator. And say you live in a state where there's a 5% sales tax.

Say you're low-income, and you make $9.38 an hour at Wal-Mart. Forty hours a week at 9.38 an hour times four weeks comes to about $1,500 a month. You buy a basic Hotpoint refrigerator on sale for $500. The 5% sales tax comes to $25.00, or almost 2% of your monthly income, just in sales tax on the fridge.

Now, say you're high-income, and you need a new refrigerator. You make $200 an hour as a corporate lawyer, which times 40 hours a week times four weeks comes to $32,000 a month. That's some serious scratch, so you're going to get a nice refrigerator, like a top-of-the-line Sub-Zero with ice-maker, chilled water in the door, all the bells and whistles. It comes to $3,500, or 7 times as much as the Wal-Mart employee's fridge. The 5% sales tax on your Sub-Zero fridge is $175. Nothing to sneeze at, but, after all, you're pulling down $32 grand a month here. $175 is one-half of one percent of your monthly income.

So let's review. The Wal-Mart employee pays 2% of his monthly income in sales tax on a basic fridge that he bought on sale. Meanwhile, the corporate lawyer pays about one-fourth as much -- 0.5% -- of his monthly income on sales tax, even though he bought a top-of-the-line Sub-Zero refrigerator.

Multiply this effect by all the things that low- middle- and high-income people buy, and you can see how a sales tax really cuts into the income of a low-income person as compared to a high-income person.

Glad to hear your reactions or questions. And thanks for commenting!

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