The Tax Foundation - The Beaver State Fails to Dam a Wave of Tax Increases

June 17, 2009

The Beaver State Fails to Dam a Wave of Tax Increases

After a brief hiccup in the senate, Oregon's state legislature passed tax increases on Oregonian businesses and high-income households late last week. Governor Ted Kulongoski (D) "look[s] forward to signing these measures into law."

Staring at a projected budget shortfall, Oregon's majority Democratic legislators aim to raise $733 million for the 2009-11 fiscal period:

HB 2649 will ratchet up the marginal personal income tax rate from 9 percent to 10.8 percent for income over $125,000 and impose a whopping 11 percent tax on personal income above $250,000. The 10.8 percent rate will drop to 9.9 percent in 2011, but the 11 percent top rate will live on indefinitely.
HB 3405 will raise the corporate income tax rate from 6.6 percent to 7.9 percent for net income over $250,000 for 2009 and 2010, dropping slightly to 7.6 percent in 2011 and 2012. Starting in 2014, a portion of these proceeds will flow into the state's rainy day fund. The minimum corporate income tax would also rise from the 1930s-era $10 to a sliding scale between $150 and $100,000, depending on gross sales.

Oregon's personal income tax already stands as one of the highest in the country, with a 9 percent rate on taxable income over $7,600. With the passage of HB 2649, Oregon looks to join Hawaii at the inglorious summit of top state income tax rates, with both states laying claim to 11 percent from their top income earners.

On the corporate side, Oregon will have to give up its 20th ranking on our Corporate Tax Index, one component of our annual State Business Tax Climate Index, when HB 3405 and its corporate tax provisions transform into law. Creating a bracketed tax scale where there was none before represents a step backwards for sound tax policy, though Oregon's zero rate on general sales will probably preserve a good overall ranking for the state's tax environment.

Oregon will thus attempt to make its high earners shoulder the responsibility of patching up the budget. For them, no-income-tax Washington is merely a scenic drive away.