Continued Tax Layering Will Backfire for Oregon Cities, Counties

By Oregon Business and Industry,

As on Tax Days past, many Oregon employers are surely wishing that state and local policymakers better understood the consequences of the taxes they adopt – or even contemplate. These consequences are felt not only by businesses, but also by the people they employ and the public services they support, from municipal policing to public education.

Every year, the nonpartisan Tax Foundation ranks states according to their business climates. The 2022 publication highlights a dozen states that have climbed or dropped markedly. One of these is Oregon, which slipped seven places thanks, in part, to “the implementation of new municipal income taxes in Portland.” The people and groups who propose such taxes seem to consider them in isolation. But the people and businesses to which they apply experience the sum total of all taxes, and the steady layering of new levies can drive decisions myopic policymakers ultimately regret.

In 2020, in the wake of several significant tax increases, Oregon Business & Industry commissioned a study of Oregon’s state and local tax burdens. The report, by the State Tax Research Institute and Ernst & Young LLP, estimated that state tax hikes would increase Oregon’s business tax burden by 41% when fully implemented. The state taxes include, among other things, the corporate activities tax and assessments related to the Oregon Paid Family and Medical Leave Insurance program.

Meanwhile, businesses in and around Portland have had to absorb additional layers of taxation and continually face new proposals. For Portland businesses, the study estimated the combined effect of all taxes enacted and proposed by the city, Multnomah County and the Metro regional government. If all taxes on the November 2020 ballot had been approved, the tax burden would have risen 42% for Portland businesses and 36%, in aggregate, for those in Metro’s three constituent counties.

The fact that voters declined to approve some of the proposed taxes provided short-term relief without encouraging lasting confidence. Portland-area voters and policymakers have demonstrated a significant appetite for significant tax hikes, including a gross receipts tax that supports the Portland Clean Energy Community Benefits Fund and the business income tax that funds Metro’s supportive-housing program.

Meanwhile, proposals to add new layers to the Portland-area tax cake just keep coming. In March, for example, an advocacy group filed an initiative in Multnomah County that would tax capital gains to provide legal representation for tenants facing evictions. According to Willamette Week, the initiative’s backers include a group that supported a preschool tax approved by Multnomah County voters in November 2020.

Faced with an ever-increasing pile of adopted and proposed taxes, employers inevitably leave or decide not to come to Oregon in the first place. More than 80% of accountants and chamber of commerce leaders who responded to a 2021 OBI survey reported having clients or members who were considering leaving Oregon for tax reasons. Echoing these findings, a venture capitalist who has been working in Oregon for a decade recently told OBI that he now advises business leaders to avoid the state entirely.

When businesses flee or avoid Oregon, jobs either disappear or fail to materialize. And as they do, the revenue attached to those jobs also disappears. The people who suffer are often those the taxes were intended to help.

Consider, again, Portland. Determined to reduce evictions, the city has adopted aggressive rental regulations in recent years, including a 2017 ordinance that requires landlords to pay many tenants’ relocation costs. This is, in effect, a huge business tax. Predictably, as ECONorthwest recently found, the city’s supply of rental houses dropped by 14% between 2015 and 2020. Many of the lost properties were in comparatively affordable neighborhoods.

Oregonians this year will elect a new governor, dozens of legislators and many local and regional officials. Some of them will be asked to support new taxes, even though the state, its counties and cities are enjoying record revenue. As they consider candidates and ballot measures, voters should keep the effects of tax layering in mind. Taxes eventually do have consequences, and they’re often not the ones proponents intend.

Disclaimer: Articles featured on Oregon Report are the creation, responsibility and opinion of the authoring individual or organization which is featured at the top of every article.