July 9, 2009
Corporate Income, Gas, Vehicle Registration, Hospitals, Health Insurers Among Other Targets
Washington, DC, July 9, 2009 - The new tax laws passed by the Oregon legislature and awaiting the governor's signature are "short-sighted political patchwork," according to a new Tax Foundation study.
State lawmakers have added two new personal income tax rates: a 10.8% rate on singles with taxable income over $125,000 (couples over $250,000) and an 11% rate on incomes twice that high. Both are retroactive to January 1, 2009.
"The new 11% rate ties Hawaii for the highest statutory tax rate on any state's books," said the Tax Foundation's tax counsel and director of state projects, Joseph Henchman, co-author with analyst Jack Mountjoy of Tax Foundation Fiscal Fact, No. 175, "The Dam Bursts in the Beaver State: Oregon's Wave of Tax Increases and New Spending," available on the web at: http://www.taxfoundation.org/publications/show/24834.html.
"The new 10.8% rate also sets a nationwide record," adds Mountjoy. "On singles' income between $125,000 and $200,000, or couples' income between $250,000 and $400,000, Oregon will be taxing income more steeply than any other state, and that's not even counting the additional local income taxes that some Oregonians pay."
Henchman and Mountjoy explain why the new laws are likely to make Oregon's tax revenue more volatile and unpredictable, which is the usual result of so-called "millionaires' taxes" on high earners. If Gov. Ted Kulongoski (D) signs the new bill into law, and he is expected to, Oregon will join New York, New Jersey, Maryland, California and Hawaii who have recently enacted a top tax rate near or above 10 percent for the highest earners.
"Echoing the Obama administration's rhetoric calling for high-income earners to 'pay their fair share' of the tax burden, Oregon lawmakers are foisting the state's budget problems onto the shoulders of a small group of high-income individuals and corporations. A better approach for the state's long-term fiscal health is to spread the burden across more of state government's beneficiaries or to make deeper cuts in state spending," Henchman and Mountjoy write. "By tacking on new personal income tax brackets and a new corporate income tax bracket, Oregon will sacrifice simplicity and equity for a politically easy beat on the drums of class warfare."
Oregon has long been one of the 31 states that have a flat tax on corporations, but the new law scraps that in favor of a bracketed system. Corporations will pay the current rate of 6.6% on their first $250,000 of taxable income but a new rate of 7.9% on all other income. The 7.9% rate would drop to 7.6% in 2012. The minimum corporate income tax liability will range from $150 for corporations with annual sales lower than $500,000 up to $100,000 for firms whose annual sales exceed $100 million.
Beyond budget-patching, the legislature also pushed through higher taxes on gasoline (24 cents per gallon to 30 cents per gallon) and vehicle registration ($23 to $78) to fund new transportation projects; and they added new taxes on hospitals and health insurers (1 percent tax on health insurance premiums) to expand the state's health care program. While most "sin" tax proposals failed—including a whopping 1,800 percent hike in the beer tax—legislators approved a tax increase on all non-cigarette tobacco products.
"Lawmakers did leave intact the state's praiseworthy zero tax rate on general sales tax," said Henchman, "but the new tax provisions will encourage businesses and individuals more concerned with income taxes to flee to more fiscally friendly states. Idaho has a 7.8% top personal income tax rate, while Washington and Nevada both scrap income taxes altogether."
Since Oregon is an initiative state, citizen groups may be able to amass enough signatures to put the measures on a general ballot early next year.
"They have struck down taxes like this in the past, and they may do so again," speculated Mountjoy.
The Tax Foundation is a nonpartisan, nonprofit organization that has monitored fiscal policy at the federal, state and local levels since 1937.
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Fiscal Fact No. 175 can be found at http://www.taxfoundation.org/publications/show/24834.html. To schedule an interview, please contact Tax Foundation Manager of Media Relations Natasha Altamirano at (202) 464-5102 or naltamirano@taxfoundation.org.