What's wrong with Oregon's tax system?

SALEM, OR -- Why do people feel they keep paying more in taxes and getting less from government?

The Oregon AFL-CIO wants to find answers to that question, as well as ways to re-establish a fair taxation plan between individuals, small businesses and big corporations. To do so, it has created a special Tax Committee, which has been meeting regularly under the chairmanship of Dave Plant, directing business representative of Machinists District Lodge 24.

The committee looked at information compiled by the the Oregon Public Employees Union which illustrates how the tax burden over the last 20 years has shifted away from corporations and onto the backs of individuals. Information in the packet was supplied by Oregon's non-partisan Legislative Revenue Office.

At first glance, statistics show a pretty picture, noting that over the past five years Oregon's taxes have actually declined from 12.7 percent of personal income to 10.7 percent of personal income. Oregon's tax burden over the last three years has fallen from 17th of the 50 states to 45th.

But these official statistics measure "total taxes." They don't show who's forking over the money. A closer look finds the true facts about the tax shift.

Item: Back in 1978-79, Oregon businesses matched all state and local taxes -- property taxes, income taxes and every other state and local tax -- paid by individuals almost dollar for dollar. By 1995-96, Oregon businesses' share of state and local taxes had declined to only 65 cents for every $1 paid by individuals.

Item: Businesses once paid about a quarter of the state income tax. Now they pay less than 18 percent. Individuals pay 82.1 percent.

Item: Businesses once paid nearly 60 percent of local property taxes. Now they pay only 45 percent. Individuals pay nearly 55 percent.

Most of the property tax shift occurred during the 1990s. Since 1990-91, taxes paid by households increased 23 percent, while taxes paid by businesses increased only 2 percent. For every $1 in higher taxes paid by households, businesses paid only seven cents. Adjusted for inflation, taxes paid by businesses have declined by 16.5 percent, while taxes paid by households increased 4.7 percent.

To answer that question, simply look at the major taxes paid by Oregon's households and businesses, track who paid what share of these taxes over time and analyze who benefited -- and who lost -- from changes in tax policy in the Legislature and at the ballot box.

Property and income taxes are the biggest source of general revenue for state and local governments. Property taxes are collected by local governments to support schools, police and fire protection, libraries, parks and other services. Income taxes are collected by the state for support of local schools, the state's higher education system, human services, prisons and courts. Payroll taxes and other taxes such as the gas tax, weight-mile tax, insurance tax, timber severance tax, tobacco and alcohol tax, are dedicated to specific purposes like unemployment insurance benefits, roads and more.

Tracking the tax shift from businesses to households shows that most of the shift (16 cents of the 34 cents) has occurred in property taxes.

The property tax is the second largest source of revenue in Oregon -- but it is the largest source of business tax payments. That share declined steadily throughout the 1980s -- then dropped rapidly after the passage of Measure 5 in 1990.

Under Measure 5, property taxes paid by homeowners increased by 3 percent between 1990-91 and 1995-96. Taxes paid by landlords and owners of second homes declined by 3 percent and taxes paid by businesses fell 29 percent.

According to Willamette Week, Measure 5 created outrageous tax breaks for some of the richest out-of-state corporations in Oregon.

For example, the $40.2 million First Interstate Tower, 1300 SW 5th Ave., paid $1.2 million in property taxes in 1990 compared to $624,000 in 1995. A tax cut of 47 percent and a cumulative savings of $2 million. First Interstate was recently acquired by Wells Fargo, the 14th largest bank in the nation worth over $56 billion.

One Pacific Square, 220 NW 2nd Ave., is valued at $22.6 million. In 1990 owner WCB Four Limited Partnership, a subsidiary of Goldman Sachs, a New York stock brokerage, paid $611,000 in taxes. In 1995 it paid $351,000, a cut of 43 percent and a cumulative savings of $1 million.

The World Trade Center, 121 SW Salmon, is valued at $20.2 million. In 1990 owner Portland General Corp., a holding company for Portland General Electric, paid $780,000 in taxes. In 1995 it paid $314,000, for a tax cut of 60 percent and a cumulative savings of $1.8 million. The list goes on.

If businesses had continued to pay the same amount of property taxes as they did in 1990-91, that amount would have generated at least an additional $628.6 million this biennium, not counting the taxes paid on residential rental property, according to the Legislative Revenue Office.

Now, Oregonians are facing Measure 47, the so-called cut and cap measure passed by voters last November. Measure 47 cuts property taxes by rolling them back to 1995-96 levels, minus 10 percent. It caps property tax increases at 10 percent a year and limits replacement funding (unless by a vote of the people) to state income taxes only.

Measure 47 freezes property tax shares at the point of greatest inequity -- at 1995-96 levels, when households were paying the largest share of the last 20 years (55 percent). By limiting replacement funding to state income taxes, Measure 47 forces government to shift to a tax that is even more unbalanced between households (82 percent) and businesses (18 percent).

Individuals pay a top rate income tax of 9 percent after the first $5,500 (single) or $11,100 (joint) of annual income. Small businesses (partnerships, sole proprietorships, etc.) pay the same rate as individuals -- a top rate of 9 percent. Corporations pay a flat rate of only 6.6 percent.

In 1993-94, the top 2 percent of Oregon corporations reported average profits of $10.8 million, on which they paid state taxes at the rate of 6.6 percent. In the same year, more than half of Oregon taxpayers reported adjusted gross incomes of $20,000 or more, on which they paid taxes at the rate of 9 percent.

Forty-four states have a personal income tax and a corporate income tax, but only nine states have lower tax rates for corporations.

These inequities have propelled the Oregon AFL-CIO to take action. Some tax fairness ideas on the table of the Tax Committee (some of which also have been introduced in the Legislature) include making the income tax on corporate profits (6.6 percent) the same as on personal income and small business income (9 percent).

They want to repeal the 2 percent corporate kicker refund and they are considering property tax reform that would impose higher property taxes on commercial and industrial property and/or target Measure 47 tax relief to homeowners. Mechanisms here include homeowner exemptions, a split-roll tax or income tax credits for homeowners and renters.

The committee is looking at a gross receipts tax as well as an end to corporate welfare such as the accelerated depreciation of buildings ($17.2 million); property tax deferral for commercial buildings under construction ($16.3 million); mortgage interest and property tax deductions for second homes ($10 million).