Oregon Raises Income Tax, Lowers Revenue Projections

Published January 23, 2011

Oregon voters last year approved measures raising the income tax on the wealthiest 2 percent of the state’s residents, those earning more than $250,000, but the new tax has brought in much less revenue than expected.

The state received only $130 million in additional revenue rather than the expected $180 million in the first year of the tax and may have permanently lost some high-income residents who opted to move to lower-tax states.

There are plenty of lower-income tax states from which to choose. As a result of the tax increase, Oregon’s tax rate is 10.8 percent on joint-filer income of between $250,000 and $500,000, and 11 percent on income above $500,000. Only New York City, which includes state and local income taxes, has a higher rate.

Most high-income residents of Oregon quickly enacted financial plans to avoid as much of the tax as possible after it became clear approval was imminent, according to Steve Buckstein, a policy analyst and founder of the Cascade Policy Institute in Portland, Oregon.

Projections Dropped by One-Third
The state’s revenue office has already revised tax collection projections down for the first three years by one-third.
The tax increase was “worse than worthless,” says Buckstein. “It raised a lot less money than the voters were told that it would. Higher-income people just changed their behavior. We did an analysis before the vote and projected that there would be 70,000 fewer jobs and 80,000 fewer high-income tax filers if this was approved. People in those tax brackets could move outside of the state or concentrate their businesses in other states.”

Oregon last year also raised its capital gains tax rate from 4 to 9 percent. Buckstein said many businesses moved to the neighboring state of Washington as a result. He expects residents to also move to Washington, which has no capital gains tax and no personal income tax.

“There are a lot of nice communities right over the border that have a large number of former Oregonians,” Buckstein said.

Continued Growth in Programs
Instead of raising taxes, the state should have cut spending, Buckstein says. But even as the state was deep in the throes of the latest recession, lawmakers started new programs requiring additional taxpayer money.

“Oregon has suffered from having liberal tax-and-spend governors for the last 20 years,” said Jason Williams, director of the Taxpayers Association of Oregon. “We’re used to huge increases in programs, but now we have to cut.”

The numbers tell the story of how ineffective the most recent tax increase has been, Williams added.

“It’s helped destroy and drive businesses out of the state. Many businesses were ruined by the increased taxes,” he said.

Phil Britt ([email protected]) writes from South Holland, Illinois.