Opinion: A soaring tax burden further chills Oregon’s business climate

Angela Wilhelms

Wilhelms is president and CEO of Oregon Business & Industry.

Oregon needs a healthy private sector to provide jobs, preserve urban vitality and generate revenue for critical public services. However, a recent cascade of state and local tax increases has eroded Oregon’s business climate, ensuring that the state will struggle to attract and retain employers of all types and sizes.

National accounting firm Ernst & Young has quantified Oregon’s soaring tax burden in a report commissioned by Oregon Business & Industry. Released in October, the report examines the effects of taxes created by state policymakers as well as those imposed by local governments in the Portland metro area. Though Portland-area taxes don’t affect employers elsewhere in Oregon directly, the city’s economic health has a significant effect on the entire state.

One way to think about a state’s tax burden is to compare business taxes with overall economic activity. This measure, known as the total effective business tax rate, is the ratio of combined state and local business taxes to private-sector gross state product. Since 2019, Oregon’s rate has risen from 4.2% to 5.4%, an increase of almost 29% in a few short years and now exceeds those in neighboring states California, Idaho and Washington.

Back in 2019, the state component of Oregon’s total effective business tax rate ranked only 38th nationally. It is now 21st, a jump of 17 places. The most significant contributors to this change are Oregon’s corporate activity tax, a gross receipts tax that collects more than $1 billion from employers annually, and the state’s paid family and medical leave program, which will collect roughly $400 million more. Thanks to these and other taxes, the state component has leaped almost 45% in three years.

These numbers would matter deeply to employers even if Oregon’s business climate were otherwise inviting. But it isn’t. Oregon suffers from complex and constantly changing regulations, limited land availability, declining educational standards and livability problems such as homelessness and crime. Piling on new taxes even as other conditions deteriorate encourages employers to grow and invest elsewhere. Without at least a lengthy pause in tax creation and increases, Oregon will sacrifice both jobs and tax revenue as employers choose more hospitable states.

This lesson in competition is particularly important in the Portland area, where several city, county and regional taxes adopted in recent years have created a crushing cumulative tax burden.

Since 2019, Portland has enacted its own gross receipts tax on businesses as well as a pair of new property taxes, which are paid by both businesses and individuals. Since 2020, Multnomah County has increased its business-income tax rate and created an income tax for people making more than $125,000 per year. Meanwhile, the Metro regional government now collects a combined personal and business income tax. Together, these taxes have increased local taxes paid by Portland businesses by 32%, contributing to an exodus to the suburbs and even beyond Oregon’s borders.

Employers also care deeply about taxes paid by individuals, and Portland now has the nation’s second highest effective individual income tax rate, the report found. At 14.69%, Portland’s combined rate trails only New York’s 14.78%. Moreover, Portland residents need to earn only $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 legislators. There will be new leaders in the Portland metro area as well. But electing new leaders won’t improve Oregon’s business climate unless they bring with them a commitment to treat employers as partners rather than unlimited sources of revenue.