By Bennett Minton
The inequities in Oregon’s property tax are only one feature of a tax system that makes no sense.
I was a tax wonk in D.C. for three decades, and I’ve spent a lot of my free time thinking about taxes, the purpose of which is to fund whatever ‘we the people’ want. (I pretend no expertise about spending priorities.) When I moved to Oregon last year, I kept catching glimpses of the state code and responding, “You do what?”
Wandering through neighborhoods in search of a home, I quickly learned to check the annual property tax, because that number would be almost as important as the price of the house. No dummy, I ended up buying a house with a $1600 bill, rather than any of similar houses at similar prices within a mile whose tax bill was eight or nine grand.
Why the gap? Because in 1997, when Oregon voters passed Measure 50, which froze property taxes subject to a 3 percent annual increase, my neighborhood was a red-lined ghetto — one where banks would not lend under normal business terms because it was predominantly black.
That slowly changed. Redlining went away after white “pioneers” began to invest. Young professionals began moving in (displacing African-Americans). Now it’s one of the hip neighborhoods: racially mixed, eclectic businesses, a ton of new construction, close to downtown. And no matter its market value, my house will continue to generate a meager tax bill for the county compared to those in similar neighborhoods.
And that’s just the homeowner tax. The same principle applies to business real property. Two gas stations in different parts of town with the same gross sales market value have wildly different tax bills.
Someday voters will see the monster they’ve created and repeal Measure 50 (and its precursor Measure 5) — or revolt with some other off-the-wall notion expressing collective outrage but without any thought for the consequences.
Here’s another factor: Because Portland is strapped for cash, it transferred financial responsibility for maintaining sidewalks and curbs to homeowners. That is, it has privatized the cost of a public benefit. The result? Our sidewalks are dangerous.
I spent a few grand to fix the one in front of my house, which I almost never use, because of the liability. But what about my neighbors, some of whom have lived here for decades, have fixed incomes, and can barely afford to keep up their homes much less the city sidewalk? What will they do when the city inspector comes by and orders them to fix the sidewalk? Meantime, my wife did a face-plant in the dark walking home after dinner because of a bad sidewalk. That cost us and the medical-industrial system $2,000.
The property tax is riddled with exceptions, the most glaring of which is the lack of a personal property tax on vehicles and boats. Most states have it, and it’s one on which most of us should agree, because it’s both progressive (liberals like that) and a tax on consumption (conservatives love that). If you own a Tesla, you pay a substantial tax; if you own an old Ford, you pay a very modest tax.
Oregon’s tax code is a mess. The 9% income tax rate begins at $17,000 of taxable income (for joint filers) — that’s way too low. But then it’s coupled with the kicker, an idea so bad only Oregon has it. The kicker is based on government economists’ estimate of whether revenues will exceed the legislature’s enacted budget. So wealthy taxpayers are expecting a big refund next year (low-income taxpayers will get something like $30) at the same time that economists are warning us of an eminent downturn. Just when the state could use that rainy-day fund, it will instead cut services.
In Oregon, we also have no sales tax, which, while regressive, would provide the state much more stable tax revenue during a recession. It could be matched to a more progressive income tax with higher bracket thresholds.
The question is not “Do you like taxes?” The question is: “What’s the most rational, equitable way to pay for the services we want?”
The greatest obstacle to a rational code is that voters get to decide on its particulars — yes or no at the ballot box — without having a clue about the consequences. James Madison warned us about this in a letter he wrote in 1782:
“We have shed our blood in the glorious cause in which we are engaged; we are ready to shed the last drop in its defense. Nothing is above our courage, except only (with shame I speak it) the courage to TAX ourselves.”
Here’s what else we heard from readers in response to Tuesday’s newsletter:
“It’s complicated. Measure 5, passed in 1990, was a normal property tax limitation that gave everybody, more or less, the same kind of break. Measure 50, passed in 1997, was a crazy scheme that created massive unfairness as well as under-funding of public services.
Before Measure 50, we paid taxes based on the market value of our property. That’s normal. Measure 50 changed that so we pay taxes on an artificial assessed value that goes up 3% per year. After 20 years of this, there are now property owners getting a 90% discount on taxes and others getting 0% discount with everybody else spread out in between. Our tax bills are now largely random (i.e. unrelated to the value of the property) and the rules are locked up in the Oregon Constitution.
One solution is to take all of the tax limitation language out of the Constitution and replace it with a system that is more equitable.That would be a heavy lift.
Another solution would be to amend the constitution to gradually achieve more equity by varying the allowed 3% annual increase in assessed value. The taxpayers getting a 90% discount now could see their assessed value increase faster than 3% per year. The ones getting 0% break could get a zero percent increase in assessed value.
No matter what we do, any change has to go to the statewide ballot.”
“Property taxes aren’t the only way that things get funded! Oregon has no sales tax, and that has an impact (negative) on all kinds of infrastructure services. We also spend a decent amount on alternative transportation solutions including bike lanes and bridges (a good thing) but bikes aren’t taxed in any way to fund that.
There are a handful of states that don’t have sales tax. What’s the real cost of this to us?”