Train wreck a-comin'
Mark your calendars, Oregonians. There's going to be one heck of a train wreck here this winter, and it's all about your state income tax (and for folks in Portland and the rest of Multnomah County, your new county income tax as well).
As you've probably heard, the Legislature passed a "temporary" state income tax increase and went home. The governor signed it right away, and so now we're told that the top rate on Oregon income will climb above 9 percent for the first time in years. Since the Oregon income tax brackets are as thin as the skin on a tax collector's teeth, just about anyone with a job here pays state income tax at an overall rate pretty close to 9 percent. (We don't have a sales tax, but we're quite serious about taxing income.)
How big is the increase that was just signed? Well, it depends on one's income, but it's probably an additional 0.4 to 0.6 percent for most folks. By my reckoning (and my students can tell you, I'm not great at off-the-cuff math), for some well-off people the bump may get them up to 9.81 percent. But on average, let's call it an increase from 9 percent to 9.5 percent. All the percentages can get confusing, but that's about a 5.56 percent increase in your Oregon tax (0.5 being 5.56 percent of 9 -- I think).
But wait, don't pay yet. The opponents of the tax, including some frustrated legislators, will within the next few days begin collecting the 50,400 signatures they need to put a repeal of the tax boost before the voters. They'll have no trouble collecting the signatures, even if they don't forge them, so there's going to be a special election on this tax increase.
The date that's been set for the statewide election? I hear it's February 3.
February 3! So Oregonians will once again be voting on a state income tax increase at the worst possible time of year for most families -- just as the financial hangover from the holidays really hits home. I don't know about you, but the net worth of this household is always at a year-long low around January 29-31, and those credit card bills are positively screaming. And that's just when the voters will be blackening the circles and sending in their ballots. (Out-of-state readers, take note that all voting in Oregon, even by dead people, is done by mail.)
Although I applaud the Legislature for doing the right thing, it's probably an illusion. The repeal is likely to pass, and if it does, the public schools, the courts, and other government bodies around the state are going to be in the exact same bad, bad, bad spot next spring as they were this past spring.
I'm not a very good political prognosticator, but on this one, I'm pretty sure I'm calling it correctly. This is especially true because the voting in Multnomah County is likely to be far less in favor of the tax than it was last year, when Multnomah voters said yes twice to higher tax levies. The dynamic is going to be different in January '04.
How's that? Well, in reaction to last year's wreck, Multnomah County voters passed a 1.25 percent county income tax of their own. The county commissioners promised voters that they would "consider repealing" that tax in whole or in part if the state increased financing for schools and social services. But unless and until the state tax surcharge survives the repeal vote, that county income tax is going to stay in place. Which means it will still be very much on the books when the statewide vote goes down.
Indeed, keep in mind that there are many people who prefer to pay state and local taxes by December 31 for various reasons, and others who like to file their tax returns in January. And so by the time the special election rolls around, many Multnomah voters will have already paid their 1.25 percent to the county.
And when they sit down at the kitchen table to vote, their math will go something like this: O.k., I've already had my state and local income taxes increased from 9 percent to 10.25 percent because of the county tax. That's a whopping 13.89 percent increase for people in the 9 percent state bracket (1.25 is 13.89 percent of 9), and even higher for folks in lower state brackets. Isn't a 13.89 percent tax increase enough to keep the schools open? Why would I vote for a state tax that bumps the increase up to 19.45 percent? I'm all for schools, but a 13.89 percent single-year increase is too much, much less 19.45 percent.
The county may make noises that it's going to reduce the county tax somewhat if the state tax survives. Apparently the county has already given Governor Ted some such reassurance in the last day or two. But let's face it, folks, a 0.5 percent surcharge is never going to replace what the county will make with a 1.25 percent county tax, and so most of the Multnomah County tax is probably here to stay, at least for a few years. And the voters in this county are going to hear all about that from the nattering nabobs of tax negativism.
Without a big victory margin in Multnomah County, the state income tax surcharge has no prayer whatsoever. And I doubt it's there. On the contrary, Multnomah County voters such as myself would rather pay taxes to the county than to the state, and there's a fair amount of bad feelings between the Portland area and the rest of Oregon right now anyway. So I don't see a major win for the tax surcharge up here.
Before they left Salem, the legislators scheduled a special session on tax reform next June. But methinks they'll be back before that, when Governor Ted calls them back for an emergency special session, probably by Valentine's Day.
Multnomah County schools may still be o.k. at that point, but other schools and government agencies around the state had better be ready for big trouble.