Study: Oregon most reliant state on state income taxes

About 41.6 percent of Oregon's state and local taxes came from the state income tax in 2015, according to the analysis from the Washington, D.C.-based Tax Foundation.

SALEM — Out of all U.S. states, Oregon gets the greatest share of revenues from its state income tax, a new analysis finds.

About 41.6 percent of Oregon’s state and local taxes came from the state income tax in 2015, according to the analysis from the Washington, D.C.-based Tax Foundation, out Tuesday.

The findings affirm what many acknowledge about Oregon’s revenues — that they rely in large part on state income taxes, which fluctuate so dramatically that one state lawmaker compares year-over-year tax collections to the peaks and valleys of the Swiss Alps.

When it comes just to state revenues, the Oregon Center for Public Policy estimates that roughly four out of five General Fund and Lottery Fund dollars comes from the state income tax.

In the upcoming legislative session, scheduled to begin in January, lawmakers must write a two-year state budget in the face of a shortfall in the state’s Medicaid program and rising public pension costs. Revenue reform could be on the table as well.

Forty-three states have an income tax of some kind. Two of those states — Tennessee and New Hampshire — tax only dividend and investment income, not wages.

Nationally, 23.5 percent of state and local tax revenues are attributable to state income tax collections, according to the Tax Foundation.

The Tax Foundation finds that Oregon’s lack of a statewide sales tax contributes in part to its outsize reliance on income taxes. Certain goods, such as beer and gas, are subject to excise taxes.

State limits on property taxes were passed into law via ballot measure in the 1990s.

The Tax Foundation argues that income taxes “tend to be more harmful to economic growth than consumption taxes” and that they are a less stable source of revenue because many people see their income fluctuate with the business cycle.

“Income taxes affect labor participation, saving, and investment, while consumption taxes, such as sales taxes, tax what people spend as opposed to what they earn,” the Foundation stated in a release.

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