OREGON STATE UNIVERSITY

Economic study shows Oregon's taxes below national average

12/14/2009

CORVALLIS, Ore. – A new study by an Oregon State University economist comparing Oregon's taxes with national averages has found that taxes are lower in Oregon than in most states, and so are some public services.

Even with passage of Measures 66 and 67, Oregon state taxes will be lower than the national average, according to the report.

In the study, OSU Extension Service economist William Jaeger compared tax data in Oregon with all other states over a period of 17 years. Jaeger compared total state taxes to total personal income for each state to reveal how much of people's income is paid in state taxes.

His data show that as a percentage of personal income, state taxes maintain a fairly steady level of about 6.4 percent nationwide, dipping a bit lower during periods of recession.

Oregon's taxes follow a similar trend, but at a lower level, averaging 6.0 percent of personal income. And the nationwide dips in tax revenue during the current and previous recessions show even deeper reductions in Oregon.

Oregon is ranked 44th in the nation in terms of taxes as a percentage of personal income. Taxes in neighboring Washington (ranked 30th) and California (ranked 15th) claim a larger proportion of personal income.

Oregon's local taxes are also lower than in most states, 3.75 percent of personal income compared to the national average of 4.34 percent.

Oregon's business taxes are also low, ranked 48th out of 50 states, according to a study done for the Council on State Taxation, a nonprofit trade association consisting of more than 600 multistate corporations engaged in interstate and international business.  

Jaeger compared the level of state taxes with the level of some government services. In terms of student/teacher ratios – a comparative indicator for K-12 public education – Oregon ranks 49th out of 50.

Other indicators suggest similar declines in public safety and higher education. The report notes that average educational levels are declining in Oregon: 28.8 percent of younger Oregonians have college degrees compared to 33.4 percent of older Oregonians. This downward trend is opposite to the rising levels of education in most other states and countries.

The study provides data relevant to two upcoming ballot measures. Measure 66 raises taxes on households earning more than $250,000 a year; Measure 67 raises corporate income taxes.

The study posed two questions related to the choice voters will face in January. First, in a recession, is it better for state governments to cut spending or raise taxes?

In his study, Jaeger quoted Nobel Prize winner Joseph Stiglitz of Columbia University and Peter Orzag, then-director of the Congressional Budget Office, who wrote: “Tax increases on higher-income families are the least damaging mechanism for closing state fiscal deficits in the short run.”

"Stiglitz and others conclude that cutting social services further harms those already hurt by the recession, while a tax increase on high-income groups affects only those who are doing well during a recession," Jaeger said.

The second question is whether these tax increases would harm or help Oregon's growth and competitiveness in the long run.

The study cites a survey of dozens of scholarly, peer-reviewed economic studies and concludes that increases in taxes, when used to expand the quality of public services, can promote economic development and growth in employment.

 "There is no reason to believe that these tax increases on the wealthiest sector would make Oregon less competitive," Jaeger said. "Oregon's taxes are significantly below national average, and they would remain below average even with the passage of Measures 66 and 67."

A summary of findings and several graphs illustrating Oregon and national trends in state taxes can be found with the full report, "Perspectives on Oregon's Taxes–an economic look at Measures 66 and 67," at: http://ir.library.oregonstate.edu/jspui/bitstream/1957/13620/1/em8997.pdf