Are the rich in Oregon paying enough taxes?

by Dan Lucas

State spending in Oregon doubled in ten years, growing from $30 billion to $60 billion. The Oregon All Funds budget doubled from the budget ending in 2001 to the budget ending in 2011. The state’s General and Lottery Funds’ budget, a subset of the All Funds budget, went up by 35% during that same time.

In the current budget cycle, state spending and taxes have generally been held in check. In the coming legislative session, though, there will be significant pressures to increase taxes to pay for PERS increases, to pay for Governor Kitzhaber’s expansion of government-run health care and to restore funding to schools. I’ve written previously explaining why additional taxes won’t solve these problems – it will take fixing PERS and funding schools first to start with (Three articles calling for a state budget “Core Fund” & 3-part series on Oregon PERS Crisis 101). Astonishingly though, not everyone has read my articles or agrees with them, and so there will be those in Salem who pursue additional taxes.

More taxes are never popular, and so a common method of selling additional taxes is to have them be paid for by someone else. In cases like Oregon’s Measure 66, that someone else was “the rich.” More recently, in the campaign cycle that just ended, the airwaves and mailers were full of accusations of “tax breaks for the rich,” which shows that “the rich” not paying enough taxes must be a focus group-tested concept that sells.

Although it apparently does well in focus groups, it isn’t true. Nationally, half of all Americans don’t pay federal income taxes. The top 20% pay 68% of federal income taxes. The top 1% pay 22% of federal income taxes.

Here in Oregon, high-income earners also already pay the bulk of the income taxes. The top 10% pay for just over half of the state’s income taxes. The middle income earners about cover for themselves – they are 30% of tax filers and they pay 35% of Oregon’s income taxes – and the bottom 60% pay only 13% of the income taxes.

The top 1% in Oregon pay 20% of the personal income taxes. The bottom 20% in Oregon pay less than 1% of the personal incomes taxes. And the number of “the rich” in Oregon has been going down. The number of Oregonians earning over $500,000 dropped by 36% between 2006 and 2009, the most recent years those numbers are available.

Another problem with taxing “the rich” is that many of the high-income earners are actually small businesses who create jobs. According to a 2011 IRS study, high-income earners make up 24% of all small businesses that have employees. Here in Oregon, state reports showed that 2/3 of the tax filers targeted for the Measure 66 personal income tax increase were small and family-owned businesses or farms. Increasing taxes on these small business owners reduces the amount of capital they have available to grow their businesses and hire more employees.

Finally, taxing “the rich” doesn’t always work out as planned, for a variety of reasons. For example, Oregon’s Measure 66 brought in less than 3/4 of the taxes projected when it passed.

Is it “fair” to further increase taxes on high income earners, “the rich”? I don’t think anyone actually believes that it is. What comes first is the perceived need for more taxes, and then the justifications follow.

Politicians have learned that when the numbers line up – where the many can vote more taxes for the few – it’s possible to pass these envy taxes. That doesn’t mean that they work, or that they’re right.

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Posted by at 05:00 | Posted in State Budget, State Taxes | 84 Comments |Email This Post Email This Post |Print This Post Print This Post
  • Bob Clark

    The public employee unions wanted to up the income surcharge included in measure 66 back to its first year level, as measure 66 included a scheduled decrease in the surcharge rate this year. Kitzhaber I think talked them out of this measure which would have been slated for this past November’s ballot. The income thresholds for measure 66 I think are $250k joint and $200k individual filer. I wouldn’t be surprised to see this ballot measure (increase the “high earner” income tax surcharge) actualize for next year ballot. A lot of Dem politicians love the sales tax though. So, we may see both measures. Most government employees make with other passive income close to $100k in individual filing and more in joint filing. So, probably the income threshold won’t be decreased from the $200k level. So, high earner surcharge is not a big tax revenue generator, and thus, the grab for the sales tax. I don’t think property tax reform will happen, because there’s real money available to battle against a hike in property tax rates; plus I think a property tax rate hike is highly unpopular (as measure 79’s passage last Tuesday highlights).

    So, high income earner surcharge and sales tax are likely headed to the ballot again. This is too bad, because I believe if we could hold to current tax rates and structure; Oregon would sell itself as a place for locating new business and economic activity relative to California. Economic growth is key to boosting public services long term, not government grabbing more from stagnate individual incomes and wealth. I think we need to do some research on the idea of creating a guideline for targeting government’s relative share of the total Oregon economy. A lot of political angst falls by the way side if we can agree to a relative share for government, and generally stick to this target decade to decade, say.

    • DavidAppell

      Why are you still propagating the falsehood that “most government employees” make close to $100k? This page has a 2011 survey of state employee salaries, without benefits, and without unpaid furlough leaves:
      http://www.oregon.gov/transpar

      Of the 32,234 salaries listed, 893 are $100,000 or above, many for executive positions. That’s 2.8%. The average salary is $50,892.

      Do you have other data? Or are you using Rovian math?

      • havetoask

        Why would you not include medical/retirement benefits which need funding in the salary figures. Isn’t it a cost of “doing business” Isn’t PERS about a few billion dollars underfunded now? Where will this come from? It is a “passive” cost as noted.

        • DavidAppell

          Then show these numbers, with sources.

  • Rupert in Springfield

    Oregonians are for “tax the rich” so long as “the rich” is defined as anybody other than them. They will vote for it every time. Just look at the last round of ballot measures:

    Measure 84, phases out inheritance taxes – killed
    Measure 85, keep corporate kicker, passed
    Measure 79, ban transfer tax, passed.

    So for the second election cycle in a row, business got their taxes jacked, not a surprise there, most don’t own businesses. Inheritance tax? Most don’t think they are going to inherit anything substantial. Transfer tax? Screw the kids, don’t tax me.

    • ardbeg

      Once again Rupert your thinking is simplistic and wrong. I currently pay taxes for a new library, and new Police station and new schools. I have voted several times to increase my own burden. There are many factors that go into why people vote the way they do and you choose to accept the most negative self centered reasons for that without really thinking the whole thing through. Same ole tune. Same ole wrong tune.

      • DavidAppell

        Yes; people like Rupert think that if only their taxes were 20% lower they would finally be satisfied and happy, finally free and unburdened, their yokes and chains finally removed.

        But a little more money in one’s checking account is not the definition of freedom — it never was, and it never will be.

        • David’s off his meds

          If you don’t think more money in your checking account means greater freedom, you’re a fool. Oh, yeah, right, you are.

          • 3H

            Hmmm… and now we understand why Republicans lost the election. Perhaps, people are simply trying to level the playing field so that we all have equal freedom.

  • DavidAppell

    The rich are doing *extremely* well in today’s America. Corporate profits are at record highs:
    http://research.stlouisfed.org/fred2/series/CP/

    even as a fraction of GDP:
    http://research.stlouisfed.org/fredgraph.png?g=cMJ

    Thus corporate dividends are up:
    http://research.stlouisfed.org/fred2/series/DIVIDEND

    and stock buybacks are, in part, responsible for the run-up in the markets, up $6.1 T since Obama took office (72%).

    Even William Kristol thinks the rich ought to pay more.

  • voterid

    For those who want to tax the rich in Oregon, we welcome the rich business owners to come on over to North Carolina and open up your business’ we have a new Republican Governor and we will, along with all the other red state governors treat the rich with respect…they create jobs, of which those in Oregon don’t want…

    • DavidAppell

      What is your evidence that the rich create jobs?
      Why were the years after the Bush tax cuts some of the worst years for job creation?
      Why, with corporate profits at record highs, aren’t more jobs being created?

      Bush On Jobs: The Worst Track Record On Record
      Wall Street Journal, Jan 9, 2009
      http://blogs.wsj.com/economics/2009/01/09/bush-on-jobs-the-worst-track-record-on-record/

      • havetoask

        Just how many jobs have you seen poor people create? Do you think the uncertainty about the future costs of doing business would have any impact on expansions/hiring practices?

        • DavidAppell

          Poor people buy things, don’t they? Soap, and cereal, and tires.

          Who creates a job if there is no one to buy what that jobs makes?

        • DavidAppell

          Do you have any evidence that “uncertainty” is behind the lack of hiring? If so, please provide it.

          Or that, if customers were lining up to buy things, there wouldn’t be a business to sell it to them, regardless of “uncertainty?”

          The fact is that people who want to start a business start it despite what’s going on. Do you think Larry Page and Sergey Brin put their finger into the wind to gauge “uncertainty” before building Google?

      • voterid

        Go ahead and send them here to NC…and we’ll let you know!..Ok? I don’t owe you any other explanation. If you can’t figure it out for yourself your more ignorant than I thought!

        • DavidAppell

          That is, you have no evidence, and you think bluster is an argument. it’s not.

        • Appell Sauce

          David is more ignorant than anyone can possibly fathom.

          • valley person

            I don’t suppose you have an actual argument to make? No, I didn’t think so.

  • http://www.facebook.com/people/Larry-Sparks/100000792793213 Larry Sparks

    It is the same old class warfare rhetoric until all the high income earners leave Oregon. When businesses leave Oregon, the same people are going to looking around and wonder what happened?

    • DavidAppell

      Why would businesses leave Oregon? — many are getting huge tax breaks to do business here, like Facebook and all the data centers. Intel negotiated a series of property tax exemptions for its Oregon equipment — the latest deal, negotiated in 2005, kicked in last year and is worth $579 million to the company over 15 years.
      http://www.oregonlive.com/silicon-forest/index.ssf/2011/10/intel_report_pegs_its_oregon_p.html

      Intel’s 2011 profits: $12.9 billion

      How much more do you want to give them?

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