Wednesday, December 23, 2009

Oregon Measure 66 will ultimately raise most people's taxes

My college textbook [Thinking About Politics: American Government in Associational Perspective, New York: D. Van Nostrand, 1981] notes that “Public discourse on taxes is uniformly unsophisticated and demagogic.” Current discussions of Measure 66 suggest that things have not improved since 1981.

Measure 66 supporters claim it will only raise the Oregon income tax for about 2% of the population. Since the essence of law is that it is a general rule of action, it is somewhat unprincipled to make its lack of generality an argument in favor of proposed legislation. However a more fundamental weakness in claiming Measure 66 will increase taxes only on the rich is that it is untrue.

More precisely, the claim is true if we look only at Measure 66’s consequences in the short run but false if we consider its longer run results.

After several years of higher surcharges, Measure 66 provides for a permanent tax increase to 9.9% for incomes above $125,000 (250,000 for couples). Incomes below $125,000 will remain at their current 9% rate. Thus, in the short run, most Oregonians will pay no more income tax.

In the long run, however, many more of us will be paying the 9.9% rate as inflation lifts our income (but not our purchasing power!) into the bracket above $125,000

Just since 2000 average salaries and prices have risen 25%, since 1994 they have risen 44%, and since 1989 they have risen 72%. So Oregonians should try multiplying their current income by 1.72 and this will give a hint of where their incomes will be twenty years from now, if they keep up with inflation. For a lot of us, it will be more than $125,000.

Inflation would not affect our taxes if the proposed changes were indexed, but Measure 66 specifically prohibits adjustment of the $125,000 point at which the higher rates kick in. “Bracket creep” will therefore push more and more of us into the higher rates, just as it has done with the notorious federal Alternative Minimum Tax, which originally was supposed to affect only the “rich.”

Bracket creep is nature’s revenge on those who think they can raise other people’s taxes without raising their own. Ironically, therefore, Measure 66 may be more general in its consequences than its supporters are acknowledging, and thus be less unprincipled than I suggested at the beginning of this analysis.

The fact that Measure 66 will ultimately raise nearly everyone’s taxes does not tell us how we should vote. I haven’t made up my own mind yet. A permanent 10% increase in the tax rates most of us pay might be a good idea. We should avoid cutting critical state programs. But we should not create a privileged class of state employees who are exempt from the restraints on and setbacks to income suffered by private employees and retirees.

Different people will come to different conclusions, and the voters will decide. I hope they will decide better if they understand the actual consequences of their decisions.

This op-ed has run in the (Portland) Oregonian.

1 comment:

  1. As a government slave in the social service sector I stand to lose my job if 66 and / or 67 don't pass. You have made a very interesting point which I had not taken into consideration though. Creep. Hmmm... It was a shoe-in I was voting YES (to save my job) but you have left me with a great deal to think about.

    I will say this. There is a lot of waste in the administration side of social services. Same info put in triplicate just because it's always been done that way. The job could be done by a lot less people if there were a lot less bureaucrats. Unfortunately it is usually the program end, rather than the administration end, that gets cut. just put me on the fence with you. Not sure how I'll vote now.

    Love your blog. Just found it today. Plan to come back.


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