Taxing Poor and Near-Poor Families: Sadly, Oregon Stands Out
Chuck Sheketoff
When you look across the country at the 41 states plus the District of Columba that levy an income tax, a majority of those 42 jurisdictions do not tax the income of working poor families with children.
Unfortunately, Oregon’s not in the majority. Oregon’s income tax reaches families with income well below the poverty level. Oregon’s tax threshold, the level at which families begin to pay income taxes, is low compared to most states. For example, in 2010 a four-person family started paying taxes when their income was $2,414 below the poverty line, which was $22,314 a year or $1,860 month for a family of that size.
And Oregon income taxes on working families at or near poverty are among the highest in the nation. A two-parent family of four with poverty-level income paid $234 in income taxes, the fourth highest income tax bill in the nation. A near-poor, four-person family — a family with income at 125 percent of poverty ($27,893 in income) — paid $799 in 2010, the third highest income tax bill in the nation.
The most targeted and efficient way to raise the tax threshold and lower the taxes on poor and near-poor households with children is to increase the state’s earned income tax credit (EITC). Shouldn’t that be a priority for the 2013 legislature?
See the one-page fact sheet, Oregon Income Taxes Reach Into Poverty (PDF).
Discuss.
Chuck Sheketoff is the executive director of the Oregon Center for Public Policy. You can sign up to receive email notification of OCPP materials at www.ocpp.org.
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8:20 p.m.
Nov 16, '11
Important reminder, Chuck.
I'm of course most interested in how we rank in total tax burden, rather than one slice like income taxes (as Oregon doesn't have a sales tax, our income taxes are outsized). Where do we rank there?
10:59 p.m.
Nov 16, '11
Evan, comparing how income tax systems treat people is important to know for a number of reasons, the most important of which is they are a direct tax on income from work and can most easily be adjusted to achieve a degree of progressivity, whereas property taxes and sales taxes (and fees) are inherently regressive.
As we noted in a 2010 report Tax Day Reality Check, Oregon's state and local taxes as a share of personal income are among the lowest in the country, our fees as a share of personal income are among the highest, and combined --our own source general revenue -- comes in about average for the nation. We also make clear in that report that comparisons of total taxes or total spending among states is not very helpful. It doesn't address the issue of what you get for the money.
5:53 a.m.
Nov 17, '11
Chuck, I don't think you or Oregon Center for Public Policy are being entirely honest here. Because most states include sales taxes as a major component of their state (and often local) tax burden, Oregon actually has one of the most progressive (or least regressive) tax systems in the United States.
I realize you and the Center for Tax Policy would like Oregon's tax system to be more progressive and that's a legitimate position. What is not legitimate is to fail to acknowledge the facts when they don't support your position.
10:31 a.m.
Nov 17, '11
Jack,
we acknowledge our overall tax system -- see, for example, the text and charts in A Step Toward Balance -- but given that Oregon's overall system is not progressive, a fact that you apparently refuse to acknowledge, we rightly refuse to say that our system is "one of the most progressive (or least regressive)." As noted by the Institute on Taxation and Economic Policy in their most recent state-by-state analysis of progressivity-regressivity, Oregon is not among the top four "least regressive states" and we are not among the top 10 in "highest taxes on the poor."
But how we rank overall, while important, should not be used to change the subject from the issue of "how well does the component of our tax system that directly taxes the work effort of Oregonians treat the working poor."
And as noted by CBPP in their paper, a focus on the income tax is important because it is the primary source of funds for the state (and slightly larger than regressive property taxes which only go to local government) and as such plays a huge role in determining the progressivity of our overall system, and families working their way out of poverty often face an effective tax on every additional dollar they earn in the form of lost health care, housing, child care and food assistance -- the income tax doesn't have to add to that.
Jack, you want to get folks to be "honest" and focus on the overall system? I suggest you focus your energy on those wealthy Oregonians who refuse to acknowledge that they pay less in taxes as a share of income than the poor. I'd love to have you at my side on that educational effort.
1:44 p.m.
Nov 17, '11
Isn't Oregon's tax system right now essentially flat (not progressive or regressive - everyone pays about the same)?
3:43 p.m.
Nov 17, '11
Not quite, last Spring we posted this: Flip it to Fix it,” a new study released by United for a Fair Economy, found that $1.8 billion a year could be available to Oregon, if only we could flip our taxes, and expect the highest income Oregonians to pay what the lowest now pay in local and state taxes. It’s hard to imagine the push back if legislators tried to do this, but why aren’t the poorest Oregonians pushing for it?
4:05 p.m.
Nov 18, '11
It’s hard to imagine the push back if legislators tried to do this, but why aren’t the poorest Oregonians pushing for it?
Because they're too busy trying to make ends meet.
3:39 p.m.
Nov 17, '11
I agree with Jack and Evan. Look at the title: Taxing poor and near-poor families: sadly, Oregon stands out. What was said in other OCPP reports isn't relevant to what you left out in this posting, which through omission, misleads.
I often deal with citizens who think, because they read something like this particular posting, that in Oregon we tax poor people much more than most states. I have to pull out "Who Pays, a Distributional Analysis" and show them that the poorest 20% in Washington spend more than twice as much on state and local taxes as do the poorest 20% in Oregon. And that in fact, our state is more progressive than many.
No, we may not be in the top 4 or the bottom 10 for the progressiveness of our tax system, but there is a lot of space in between. We should be pretty proud of our position amongst the states.
Since OCPP sent this same report to media outlets across the state, many news readers, reporters and Oregonians could easily get an impression that is not accurate. As “Because facts matter” implies a responsibility for not misleading, a correction or further explanation, to the same media outlets is in order.
4:14 p.m.
Nov 17, '11
Going from memory here ... isn't this problem largely because Oregon's once-progressive income tax wasn't indexed, and we're still paying according to income brackets that were established in the 1930s? We pay 5% on the first $3,050, 7% up to $7,600, and hit what was until recently the top bracket (9%) above $7,600. Those figures strike me as pretty fair for 1930. but are preposterous in 2011. You wind up in the 9% bracket if you're working a part-time minimum wage job.
I genuinely don't understand why this wasn't fixed years ago. It shouldn't be THAT difficult to create, say, a 5/7/9/11 tax system that is meaningfully progressive -- say, 5% at less than full-time minimum wage (that'll be $17,600 next year), 7% up to, say, median household income (about $50,000), 9% above that to twice the median income, and impose the 11% bracket above $100,000. (The current 11% bracket is around $125,000, I think, but everyone would share a tax break from the expanded lower brackets).
And once the brackets are set at something fair, index them to avoid bracket creep -- or maybe just use a "minimum wage, median income, twice median income" calculation to recalibrate the brackets each biennium.
7:30 p.m.
Nov 17, '11
Increasing the state’s earned income tax credit (EITC) should be a priority for the 2013 legislature. Absolutely, WIC needs attention too. But Chuck cannot warrant his assertion that Oregon's combined state and local tax system is regressive. As a matter of fact, it isn't clear whether Oregon's state and local tax structure is mildly progressive, proportional, or mildly regressive. "Who Pays, a Distributional Analysis" makes one set of claims about payments and a set of assumptions about the incidence of various taxes that are to say the least arguable. While it makes sense to use these figures to compare states (in which case, by the standard measure of progressivity, Oregon ranks third best), they aren't conclusive on this claim. Also, oregon's PIT brackets and exemptions are indexed.
7:12 a.m.
Nov 18, '11
In my best Christopher Walken, 'You got it all wrong'. Chuck, you mislead by omission when you leave out the factor of sales tax in most states. With EITC, an Oregon single parent making under $23,000/year receives far more in refunds than they had with held in payroll taxes for Fed/state taxes, Social Security and Medicare. Net-net they receive more in refunds than they have paid out. This would be before factoring in Oregon Health Plan, Oregon Trail Card and other low-income subsidies.