Tuesday, May 12, 2015

Fred Thompson: Oregon’s State and Local tax System Is Exceptional

Another contribution from Fred Thompson:

Previous blogs have focused on Oregon’s personal income taxes, property taxes, the apportionment system for business income, the weight-use-mile tax, now paid only by commercial vehicles, but under study for personal vehicles as well, local user fees, and the lack of a sales tax, all of which make Oregon weird and semi-wonderful.

Most people who pay attention to tax matters know that Oregon’s tax eccentricities have given it the nation’s most progressive state and local revenue system and one of its more expansive, that Oregon’s economic growth over the past fifteen years has outstripped the nation by a wide margin, and that its overall tax/fee burden over the same period has been relatively restrained. It is less commonly known that the administrative costs of our tax system are also among the lowest per-dollar-collected in the county, but that is also true, as is that fact that more of our state and local tax payments are offset by the IRS than in any other state. This post will note a couple of our fiscal idiosyncrasies, which aren’t so well known, but which probably deserve greater attention than they get.

Oregon is one of a handful of states with a death tax (estate and/or inheritance tax)

Our estate tax generates approximately $200 million each biennium, approximately 1.4 percent of General Fund revenues. It is tied to the federal estate tax and levied on the net assets (all real and tangible property in Oregon plus stocks, bonds, business interests, retirement plans, IRAs, etc. regardless of their location) of deceased Oregonians (residents) in excess of $1 million (the feds exclude $3.5 million). The state rate is progressive and tops out at 16 percent. We also have an inheritance tax, which is levied on the real/tangible property located in Oregon formerly owned by deceased non-residents. It doesn’t generate much revenue (less than $40 million per biennium). In both cases, it is suspected that the tax gap (the difference between legal liabilities and actual payments) is quite large, but at present we have no way of knowing this for sure.

The estate tax is one of the most progressive aspects of our tax system. If we are serious about this tax, we must make an effort to understand it better, perhaps in cooperation with the handful of other states that collect this tax.

At the other extreme, Oregon’s most regressive and discriminatory tax by far is state-sponsored gambling. We know that most of the state government’s gaming revenue (more than $1 billion in the 2015-17 budget cycle) comes from about 100,000 or so problem gamblers.  While there is relatively little Oregon-specific information on the identity of these folks, evidence from elsewhere suggests that they are disproportionately poor and ill educated. It is also the case that it costs the state almost as much to collect this revenue (not including the payout to winners) as the state nets, which is damn inefficient.

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