Oregon mostly gets it right

Although you’d never guess based on the complaining, Oregon lawmakers and voters have done quite a good job of designing a tax system that meets fundamental measures of fairness.

On the flip side, Washington state does pretty much everything wrong, according to the Institute on Taxation and Economic Policy.

There are other ways to assess tax systems, but among the most basic is whether burdens are based on the ability to pay. This means people who make the least money ought to be taxed less, so they can meet their own personal expenses. Rich people can afford to pay more taxes and still have plenty of money to live well. Based on these principles, the post-World War II generation built one of the greatest national success stories ever known.

In Oregon, as in all other 50 states, incomes are less equal after state and local taxes than before. But only California and Delaware, plus the District of Columbia, are slightly more fair than Oregon. The tax institute figures Oregon has a tax inequality index of minus 1.3 percent — meaningless in itself, except when compared to other states such as Washington, which has an index rating nearly 10 times worse.

Total tax collections are remarkably consistent across the board in Oregon, with the lowest-income one-fifth of wage-earners paying 8.1 percent of income on state and local taxes, the next one-fifth paying 7.3 percent, the middle one-fifth 7.6 percent, and the second-highest income one-fifth paying 7.8 percent. Only the top 1 percent — residents who make more than $371,000 a year — pay a significantly lower share of income on taxes, 6.5 percent.

In Washington state, which according to this analysis has the nation’s least-fair taxation, the lowest-earning one-fifth pays a whopping 16.8 percent on state and local taxes — more than twice as much as their peers in Oregon. Middle-earners pay 10.1 percent, while the wealthiest 1 percent pay 2.4 percent. There are wealthier people in Washington than in Oregon, with an annual income of more than $507,000 needed to be in Washington’s top 1 percent club.

Washington’s horrendous tax system generates relatively little griping by citizens, while some Oregon counties routinely tie themselves up into knots, unable to agree to even fund adequate law enforcement and jails. This is a reminder of the importance of psychology in taxation — Washington depends on sales taxes that are paid a little bit at a time, while Oregon relies on highly visible income and property taxes.

The takeaway from all this is that Oregon can stand to make incremental improvements — particularly to pay for maintaining infrastructure — but shouldn’t be tempted to make major changes. Washington, on the other hand, has a seriously troubled situation that is almost certain to get worse as the state wrestles with how to pay with court- and citizen-mandated hikes in K-12 education funding.