Don't Believe the Hype! Portland does NOT Have the Highest Taxes in the Country!

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Produced by: 
KBOO
Air date: 
Mon, 03/25/2024 - 9:00am to 10:00am

 

Local economist Mary King de-bunks the business lobby talking point that we have the highest taxes in the country.  Actually, Oregon’s in the middle of the pack for state and local taxes that businesses pay.  For households, our taxes per person are well below the highest tax states of New York and California, and among the most equitable in the country, largely because we don’t have a sales tax.  The less income you have, the more of it you’ll pay in a sales tax state.  What’s more, the downtown building owners griping loudest about their local tax bills get all kinds of federal, state and local tax breaks.  

 

Thanks to Portland's Street Roots newspaper for allowing KBOO to share this audio of a revised version of this piece, published on January 17, 2024.  You can also find news from Street Roots on KBOO's News In Depth on Wednesdays at 5:30.

Image: A word cloud featuring "Income Inequality" by EpicTop10.com  licensed under CC BY 2.0.

 

Text/transcript (scroll down for audio)

The local press is again spreading a deceptive business lobbyist talking point, claiming that taxes in the Portland metro area are the highest in the country.  It’s just not true!  Total state and local taxes in Oregon, reported by the U.S. Census Bureau, are right in line with several other states, including Washington, Wyoming, New Mexico and Massachusetts. Taxes per person are just three-quarters of New York’s and four-fifths of California’s.

Unlike most states and many cities, we have no sales tax, which holds down our total tax bill and spreads it more fairly.  Since the 1990s, our property taxes are limited and increasingly uneven. Many property owners pay tax on assessments far below the market value of their real estate.  Oregon’s gas taxes are relatively low, too, as are the taxes on beer and wine.

Only one tax rate, on one kind of tax, on people with the very highest incomes, is relatively high in the Portland area – though lower than in New York City and not much higher than San Francisco.  That’s the income tax rate by paid by very affluent families, combining state, Metro and Multnomah County income taxes.  And that combined rate only applies to income that’s over $400,000.  Half the families in Multnomah County don’t have even one-fifth of that much income.

What’s more, the loudest griping about our local taxes comes from big downtown property owners who get lots of state and local tax breaks, on top of coddling by the federal government.  They need to recognize what the rest of us see: tremendous value being added to our community and economy through the provision of affordable housing, supports for people on the streets, universal preschool and investments in climate resilience.

Oregon is Actually a Leader in Equitable Taxation

State and local taxes generally make economic inequality worse, taking a much bigger chunk from families with the lowest incomes than the highest.  We’re better than 41 other states, but could be better still. Oregon still takes more from families with little than from people with a lot.

Most states are much worse because they rely on sales taxes, rather than income taxes.  Sales taxes hit people hardest who are just scraping by, spending their entire incomes on necessities.  The less money you have, the more of it you’ll pay in sales tax.

Sales taxes are really high in the South, as well as in Washington, California and New York.  In California, the state sales tax is 7.25%. With local sales taxes added, it’s up to 10.75% in some cities.  Plus, California car buyers pay those sales taxes when buying a vehicle, even a used car sold by an individual.  Compare that to Oregon’s vehicle tax of one-half of one percent, charged to car dealers – who can legally try to get you to pay it.

No Sales Tax Means Lower Business Taxes, Too

Oregon is actually in the middle of the pack for combined state and local taxes on businesses.  Business tax payments are also held down because we have no retail sales tax.  We think of a sales tax as falling on consumers, but businesses also pay it on supplies.

To accurately compare business taxes in different states, you need the effective tax rate of all state and local taxes combined.  The effective tax rate is how much of total profits companies are paying, after working all the tax breaks and accounting tricks available.

Effective business tax rates for different states are calculated by business consultants Ernst and Young.  WE need to look at their two most recent reports, because tax payments were shifted between years, due to covid. They find that Oregon’s effective business tax rate averaged less than 5% of profits. That puts Oregon near the middle of other states, which ranged from 3.3 % to 8.7%.

Oregon’s Commercial Activities Tax May Not Make Up for the Drop in Corporate Taxes Since the 1970s

Since the property tax has been restricted for thirty years, Oregon hugely relies on income taxes to fund the state’s spending on education, public safety and health & human services.  But, by 2018, the corporate share of income taxes had sunk to less than half what it  was in the 1970s, leaving households to foot the bill.

In 2019, the state legislature passed the Corporate Activities Tax (CAT), to create the appearance that businesses were again contributing as they used to.  However, the tax design makes it relatively easy to pass the cost on to consumers in higher prices.  As two tax advisors wrote, “while the cost of the tax will not be directly borne by the buyer the same as a sales tax, it is anticipated that some or all of the burden of the tax will be passed on by the seller to the buyer indirectly through higher prices.”

Federal Taxes Are Low – Especially for Real Estate Investors and Developers

For decades through the middle of the 20th century, the top federal personal income tax rate fluctuated between 70 and 94 percent – during many years of high economic growth.  That rate applied only to income over a high threshold.

That top rate was brought down by Reagan, Bush 2 and Trump. It’s been below 40% since 1986.  Democrats raise it a bit and Republicans bring it back down, most recently by Trump in 2017.  The Brookings Institution assessed Trump’s tax package, saying “It will take resources from future generations and from today’s lower- and middle-income households to enrich today’s well-to-do.”

Trump’s tax cut, half-accurately called the Tax Cuts and Jobs Act (TCJA), especially benefited real estate investors and developers.  The American Bar Association’s analysis of its details concluded: “The intention was to uplift the real estate business, not the individual homeowner, something the TCJA delivers.”

Plenty of State and Local Breaks for Real Estate Investors, Too

Oregon’s tax code generally mirrors the federal one.  That means the state also gives several big tax breaks to real estate investors and developers, including the members of multi-millionaire Jordan Schnitzer’s “Revitalize Portland Coalition.”  Schnitzer’s group bills itself as the “voice of Portland commercial real estate focused on providing feedback and advising public officials.”

It's Schnitzer’s group leading the charge against the small, local income taxes strongly supported by the voters to create universal preschool and provide essential services to people living on the streets.

What we never hear mentioned by the real estate industry, or the local press, is how much of the recent increase in local income taxes was outweighed by federal, state and local tax cuts and tax breaks.  Nor do we hear about the big, widely-spread and proven benefits to the local economy of the services being funded by small, local income taxes. 

 

 

 

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