Just a week after the proposed Oregon income tax increase went down to a resounding defeat in a statewide vote, local politicians in Portland are scrambling to impose the same tax increase on their own constituents. Although the ballot measure increasing personal state income taxes from 9 to 9.5 percent bombed elsewhere in the state, it passed in the City of Portland, and in Multnomah County, which is dominated by Portland. And so my friend County Commissioner Lisa Naito and City Commissioner Erik Sten are proposing to impose a new 0.5 percent income tax at the county or city level.
I'd be for it. As it turns out, both Portland and Multnomah County give up more income tax revenue to the state than they get back in money and services, and so paying the tax locally would keep more dollars in the area closest to home. And as I said during the Measure 28 debates, it's only a couple of hundred bucks a year or less for most people.
The county apparently has the power to adopt this tax by commission vote right away. Portland, on the other hand, would have to get the power to levy this kind of tax by a citywide vote before the City Council could actually impose it. So I'd give the county the favored post position in the horse race to our wallets.
As a tax lawyer, however, I don't envy the folks charged with the tasks of drafting the local income tax, and setting up an administrable system of collecting it. I assume the tax returns and payments would be processed by the state Department of Revenue and forwarded to the county or city government. The state would doubtlessly take a cut, but that's unavoidable. Establishing an independent local collection machinery would probably be prohibitively expensive. Auditing could be done at either the state or local level, I suppose.
One knotty problem will be taxation of folks who don't live in the county (or city), but work here. If modeled after the federal and state income tax laws, the new local income tax would tax local residents on their worldwide incomes, and nonresidents of the local area on their local-source income. For example, if Multnomah County imposed the tax, I would assume that it would apply to salaries earned by Washington and Clackamas County residents who work in Portland. An interesting case would be bank account interest. If a Beaverton resident banked at a branch in Beaverton (in Washington County), obviously Multnomah County couldn't touch the interest income. But what if the Beaverton resident banked at a branch in downtown Portland? Presumably that interest would be subject to a Multnomah County income tax. What fun.
Good luck with all this, Lisa! By the time you pay the lawyers and accountants to get the system set up and operating, you may have spent the entire 0.5 percent that you've raised.
But let's hope not.