Wilhelms is President and CEO of Oregon Business & Industry.
Oregon needs a healthy private sector to create jobs, maintain urban vitality, and generate revenue for essential public services. However, a recent cascade of state and local tax hikes has eroded Oregon’s business climate and has ensured that the state will struggle to attract and retain employers of all shapes and sizes.
National auditing company Ernst & Young quantified Oregon’s rising tax burden in a report commissioned by Oregon Business & Industry. The report, released in October, examines the impact of taxes imposed by state policymakers as well as local governments in the Portland metro area. Although Portland-area taxes don’t directly affect employers elsewhere in Oregon, the city’s economic health has significant implications across the state.
One way to think about a state’s tax burden is to compare corporate taxes to aggregate economic activity. This metric, called the total effective business tax rate, is the ratio of the combined state and local business taxes to the state’s gross national product. Since 2019, Oregon’s rate has risen from 4.2% to 5.4%, an increase of almost 29% in a few years, and now surpasses those in neighboring states of California, Idaho and Washington.
In 2019, the state component of Oregon’s total effective corporate tax rate ranked only 38th nationally. It is now 21st, a jump of 17 places. Key contributors to this change are Oregon’s corporate income tax, a gross receipts tax that collects more than $1 billion annually from employers, and the state’s paid family and medical leave program, which will collect about $400 million more. Thanks to these and other taxes, the government component has increased by almost 45% in three years.
These numbers would be significant to employers even if Oregon’s business climate were otherwise benign. But that’s not it. Oregon suffers from complex and ever-changing regulations, limited land availability, declining educational standards, and life issues such as homelessness and crime. Imposing new taxes, even as other conditions deteriorate, encourages employers to grow and invest elsewhere. Without at least an extended pause in tax planning and tax increases, Oregon will sacrifice both jobs and tax revenue as employers choose more hospitable states.
This competitive doctrine is particularly important in the Portland area, where multiple city, county and provincial taxes introduced in recent years have created a crushing cumulative tax burden.
Since 2019, Portland has enacted its own gross receipts tax for corporations, as well as two new property taxes that are paid by both corporations and individuals. Since 2020, Multnomah County has increased its business tax rate and introduced an income tax for individuals earning more than $125,000 per year. Meanwhile, the metro regional government now collects a combined personal and corporate income tax. Combined, these taxes have increased local taxes paid by Portland businesses by 32%, contributing to exodus to the suburbs and even beyond Oregon’s borders.
Employers also care deeply about taxes paid by individuals, and Portland now has the second-highest effective income tax rate in the country, according to the report. At 14.69%, Portland’s combined rate is only behind New York’s 14.78%. Additionally, Portland residents only need to earn $125,000 per year to trigger the highest marginal rate. A New York taxpayer would have to make $25 million.
Oregon will enter 2023 with a new governor and many new lawmakers. There will also be new leaders in the Portland area. But electing new leaders won’t improve Oregon’s business climate unless they come with a commitment to treating employers as partners rather than unlimited sources of income.
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