Street roots., January 03, 2014, Page 10, Image 10

Street roots
11
i ií í f í
•Jan. 3, 2014
Oregon state taxes: What's fair, what’s not
There is one thing everyone in Oregon agrees on:
the state tax system is a mess and something needs
to be done. And that is where agreement ends.
Everyone has a different solution, and nobody likes
anyone else’s.
Why are taxes so controversial?
Robin Hahnei
Robin Hdhnel is a
political activist and
retired visiting '
professor o f economics
at Portland State
University. He is a
co-creator o f the post­
capitalist economic
model known as
participatory
economics, along with
Z Magazine editor
Michael Albert. He is
also Professor
Emeritus at
American University
in Washington, D.C.
Every one of us can find something the state is. ;
buying with our money that we would not buy if we
had the choice. And every one of us can think of
someone beside us we think should be paying more
taxes. Unlike private, goods where each of us can
choose what to buy, we must all buy the same public
goods together, when the truth is that we would all
prefer to buy somewhat different public goods. In
other words, when choosing public goods we are
like Siamese twins with different preferences who
must constantly bicker over what to buy. And
regrettably when we address how much tax each of
us should pay we are not in what the philosopher
John Rawls called his “original position” where a
“veil of ignorance” keeps us from knowing our
personal economic situation. Instead, we are well
aware of how any. tax would affect us personally. In
other words, debates over, tax justice will inevitably
by tainted by self-interest1
When are taxes fair?
Moving beyond the most common answer - mine
are too high and yours are too low y requites a
philosophy of fairness. Any tax will either be
progressive, regressive, or proportional. A
progressive tak is one where the higher your
income, the higher percentage of your income you
will pay. A regressive tax is one where the higher
your income the lower the percentage of your
income, you will pay. And a proportional tax is one
where everyone will pay the same percentage of
• their income, irrespective of how low or high their
income.
One philosophy of fairness concludes that
proportional taxes are the Only fair taxes: We all
consume the same public goods so it is only fair
that we should all contribute the same percentage
of our income to pay for them. A different
philosophy concludes that progressive taxes are the
only fair taxes: While true that we all consume the
same public goods, since richer people are more
capable of paying, it is only fair that they should
contribute a higher percentage of their income to 1
pay for them. Another philosophy concludes that
only progressive taxes are fair, but for an entirely
different reason: Because of the way capital and
labor markets work the pre-tax distribution of
income is demonstrably unfair - a higher; percentage
of the income of those in higher income brackets is*
undeserved as compared to those in lower brackets.
Therefore, progressive taxes are required to
ameliorate pre-tax inequities. I am aware of no
philosophical argument which concludes that
regressive taxes are fair - which is astounding since
most taxes in the United States are regressive. So
what do those urging us to adopt regressive taxes
say?
Those who support regressive taxes most often
change the subject. Instead of asking what
percentage o f one’s income one pays in tax, they
want us to focus on how many dollars one pays.
Consider a highly regressive tax where a person
with a $50,000 annual income pays 20% while a
person with a million dollar annual income pays only
one p ercent Both would pay $10,000 in taxes,
which those who favor regressive taxes would like
us to believe is fair. But notice, for everyone to pay
the same amount the tax system would have to be
as regressive as the pre-tax distribution of income is
unequal!
, .
What anyone who pretends to hold “progressive”
values should understand is that because a higher
percentage of richer people’s income is undeserved
in the first place, and because those who are richer
can afford to pay a higher percentage of their
income in taxes, progressive taxes are more fair
than proportional taxes, which are, m turn, more
fair than regressive taxes.
Which taxes are progressive, and which are
regressive?
There are well-known answers to these questions
that all economists agree on. Corporate income
taxes aré invariably progressive because nöt all of
the tax can be passed onto customers, and only the
wealthy have significant dividend ificome. Personal
income tax rates are usually progressive. For
married couples filing jointly federal personal
income tax rates for 2014 range from a low of 10
percent on taxable income below $18,150 to ä high
of 39.6% on taxable income above $456,600.
However, loopholes that favor the rich make the
federal income tax much less progressivé than one
would expect from the rate schedule, and federal
income tax rátes have become much Jags
progressive over the past sixty years. In 1955, when
a Republican named Eisenhower Was in the White
House, the rate for a married couple filing jointly
with taxable income above $456,600 (in 2010
dollars) was 62%, and taxable income above
$3,255,000 was taxed at 91%. Oregon personal
income tax rates are also progressive, but much less
so than federal rátes. Currentiy rates range from a
low of 5% to a high of 9.9% on taxable income over
$250,000 for couples filing jointly. Why a state that
is more progressive than average should have a
state income tax that is so much less progressive
than th e national income tax iS a question that
needs to be asked.
Sales taxes are almost always regressive because
they only tax what people spend. Since on average
richer people save a higher percentage and
consume a lower percentage of their income, a sales
tax applies to a smaller percentage of the income of
the rich than th e poor. Property taxes are
notoriously regressive for two reasons: One,
landlords, who are on average richer than their
tenants, pass on most of a property tax to their
renters. Two, whereas the wealthy have many other
forms of wealth in addition to their houses, the only
wealth an average American has is in their home.
An important, yet little appreciated fact is that
property taxes are a wealth tax which unfortunately
applies to close to 100% of an average family’s
wealth, but to only a tiny fraction of a wealthy
family’s wealth. Finally, licenses and fees, like the
lottery, are a regressive way to raise revenues since
on average, the poorer yon are the higher
percentage of your income you spend on licenses,
fees, and lottery,tickets.
Don’t Throw Out the Baby with the
Bathwater
As stränge as this may seem, compared to other
states, there is much that is not only good, but very
good about the Oregon tax system. Because we
have an income tax, and many states do not, and
because we dò hot have a sales tax, and most states
do, Oregon taxes are more progressive than most
states. This is both very good, and suits a population
that, on average, is more progressive than the U.S.
population at large. So this is not the part of our tax
system we should be changing. Instead, we should
protect and expand the progressivity of the Oregon
tax System: We can do this by continuing to reject a
state sales tax and making state corporate and
personal income taxes more progressive.
Our problem is that we tax ourselves too little in
light of the amount of public goods Oregonians
prefer, especially education. And the reason has
become apparent: Over the past 20 years
conservative* anti-tax strategists passed ballot
initiatives restricting increases in property taxes,
‘and requiring any annual surpluses that should go
into a rainy day fund be rebated instead. This has
made it impossible to fund the level of public
se rv ice s O regonians d esire, including d e c e n t ,
education for our kids.
In effect, these conservative political strategists
are blackmailing Oregonians into acquiescing to a
more regressive tax System - give up and pass a
sales tax to Stop the erosion of public services. Why
this campaign, which is primarily responsible for .
our tax mess, was so successful historically is
important to understand if We are to devise a
successful strategy to reject blackmail and fix the
mess. First things first What would fix the mess?
We need to both increase statò tax revenues and
make the system more - not less progressive. How
to do this is not rocket science: Increase personal
and corporate income taxes substantially. Minimize
the impact of raising personal income taxes on
middle and lower income Oregonians by making the
rates much more progressive. If we do this we can
adequately fund th e social services Oregonians want
without passing a regressive sales tax, or increasing
regressive property taxes, licenses, and fees.