Measuring income inequality in Oregon: Editorial – OregonLive.com
Who knows who will be on the ballot for 2016 elections? Will Gov. Kate Brown have a serious opponent? Will anyone step up to run against Ted Wheeler for Portland mayor now that incumbent Charlie Hales has said he won’t seek re-election? And will Republicans choose an outsider or establishment candidate for president? It’s much easier to predict the issues that will dominate the campaigns, and income inequality sits near the top of the list.
The squeeze on middle-class jobs and threat to retirement security have everyone’s concern. But what can be done to restore hope for Oregonians? The editorial board of The Oregonian/ OregonLive is exploring questions that need to be answered in order to devise solutions.
In Oregon, the gap between haves and have-nots also is likely to drive initiative campaigns, including a ballot measure seeking to increase business taxes and a possible vote on increasing the minimum wage – if the Legislature doesn’t tackle the issue next year. So, just how much do the top 1 percent earn in Oregon, and how much do they pay in taxes? How unequal is Oregon compared with other states? The answers to those questions aren’t easy, in part because there’s more than one way to measure inequality. But this much is clear: The conversation is different here than in many states.
The simplest way to look at inequality is to compare the money earned by the highest-income households with the earnings of the lowest-income households. According to 2013 data from the Oregon Department of Revenue, the top 1 percent of tax filers (including joint returns) in Oregon earned $350,000 or more. The cutoff for the top 5 percent was 160,000, and it took $84,000 to make the top 20 percent. In contrast, the bottom 20 percent of tax filers earned $20,000 or less. The top 20 percent paid 67.6 percent of the personal income taxes collected, with top 1 percent paying 19.2 percent.
Another way to measure inequality is to compare the top 1 percent to everyone else. Using this gap, Oregon has one of the smallest gaps in the nation, according to the Economic Policy Institute. The top 1 percent in Oregon averaged $810,196 in income, or 20 times more than the average of $40,314 for everyone else.
The smallest gap in the continental U.S. was in West Virginia, where the top 1 percent earned 16 times more than the rest of the populace. Both Hawaii and Alaska had multiples of 15 – perhaps being in a really remote location reduces inequality. All total, 12 states had lower inequality multiples than Oregon.
A more complex inequality measure, frequently used by economists, is the Gini coefficient. The Gini is a statistical computation that ranges from 0 to 1, with a higher number indicating greater inequality. By this measure, Oregon sits in the middle of the pack. Its Gini of .4624 is higher than that of 23 states, according to 2014 U.S. Census Bureau data. Alaska had the lowest, followed by Wyoming.
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So depending on the measure you prefer, Oregon ranks anywhere from slightly below average to well below average in income equality. The next, and more difficult, question is whether Oregon could do even better with policy changes.
The two methods for reducing inequality that currently are at the forefront of political discourse are raising taxes on high earners and raising the minimum wage for low-income workers. Oregon has less to gain from those approaches than many states because we already tax high income more aggressively and pay entry-level workers more than most states. Most economists agree that at some point raising taxes and the minimum wage would be counterproductive – though there is little agreement on exactly where that level is. Since Oregon starts at a higher floor, it has less headroom to work with before reaching the ceiling.
Oregon’s top tax bracket of 9.9 percent is the second-highest among states. Also, Oregon taxes capital gains at the same rate as income and, therefore, also has the second-highest capital gains rate – a distinction that is magnified because neighboring Washington taxes neither capital gains nor income.
Would raising taxes even more discourage top earners from living in Oregon? There’s not a clear answer, but workers in the top 30 percent of income spectrum in the Portland area already earn about 14 percent less than the national average, according to research by ECONorthwest. You have to really want to be here to accept less pay and higher taxes.
At the other end of the spectrum, the bottom 20 percent of Portland workers earn 10 to 30 percent more than low earners nationwide. That’s at least in part because of the state’s $9.25 minimum hourly wage, which is second-highest in the nation. Those numbers could begin to shift as cities such as Seattle and Los Angeles raise their minimums to $15.
None of this changes the reality that low-income households are struggling in Oregon, but it does suggest that changing tax rates and the minimum wage likely won’t be enough to reduce the suffering.
–The Oregonian/OregonLive editorial board