OSU economists tackle questions about Oregon taxes, spending

January 12, 2004

CORVALLIS - Economists from Oregon State University have prepared a document to help Oregon taxpayers understand how the state’s taxes and spending stack up. A series of fact sheets, “Seven Frequently Asked Questions about Taxes and Spending in Oregon,” outlines several factors that converged on a vulnerable public finance system to create a fiscal “perfect storm” in Oregon in 2001.

“In recent years, ‘sound bite’ politics has limited the depth of discussions and debates on government finances,” said William Jaeger, co-author with Bruce Weber of the new fact sheets. “The purpose of this document is to provide information about taxes and spending that is succinct and factual.

"We see this as an important first step toward promoting a constructive dialogue on issues more complex and contentious than these underlying facts.”

Jaeger and Weber, faculty members of OSU’s Department of Agricultural and Resource Economics, use data from the U.S Census Bureau and other reports to help explain why Oregon’s state budget was hit so hard in the recent recession. They compare Oregon’s current fiscal situation to other states and show trends in state taxes over the last 10 years.

Because any state’s economy fluctuates from year to year, the revenues collected in taxes will also fluctuate, according to Jaeger and Weber. Property tax, a relatively stable source of revenue, is almost always a local tax. In contrast, personal income tax is one of the least stable sources of revenue, and yet it makes up most of Oregon’s state tax.

Most other states spread out their tax base among several major taxes to ensure a stable source of revenue, according to Jaeger and Weber. The U.S. Census Bureau reports a 50-state average of 37.1 percent contribution of income tax to total state tax collection. That means income taxes contribute just over a third to the average state revenue. However, Oregon draws almost three-quarters (74.4 percent) of its state revenue from income taxes.

Jaeger and Weber compare Oregon’s state and local tax revenues, as a percent of personal income, with the rest of the states. Oregon’s taxes rank 39th in the nation. Of the western states, only Nevada and Colorado have taxes that are a lower percentage of personal income. However, back in 1990 Oregon’s taxes ranked considerably higher, at 13th in the nation.

Numbers can be confusing. Jaeger and Weber compare two graphs showing state and local tax dollars collected annually in Oregon for the last several years. The total dollar amount has risen steadily, due in part to inflation and increases in population and income. In contrast, state and local taxes as a percent of personal income have remained flat, hovering between 10 and 12 percent.

The last fact sheet addresses a question prompted by the proposed temporary tax increase that voters will consider next month. To understand the consequences of raising or lowering taxes, the authors draw on analyses by international experts, including 2001 Nobel Prize-winner Joseph Stiglitz, and others.

The fact sheets are available as a single document, “Seven Frequently Asked Questions about Taxes and Spending in Oregon,” on the website of Oregon State University Extension Service at: http://extension.oregonstate.edu. Click on the article titled, "Tax FAQs."

Author: Peg Herring
Source: William Jaeger, Bruce Weber