Why We’re In This Crisis

Every day, headlines tell the story of the once-in-a-lifetime economic crisis we’re facing. Schools are being forced to lay off teachers and increase class sizes, low-income seniors and people with disabilities are being told they may lose the services they depend on, and prisons may be closed.

So how did we get into this crisis? Mike Leachman from the Oregon Center for Public Policy explains how we got here–and what the crisis means for the values and priorities we all share.

Where Does The State Spend Its Money?

The vast majority of state spending is in three areas: education, public safety, and help for the vulnerable. Those three categories account for 94% of the basic state budget.

In other words, 94 cents of every dollar the state spends goes to things like educating our children, buying textbooks, providing in-home and long-term care to low-income seniors, placing children in foster care, and keeping our communities safe from crime.

If you take a big bite out of this pie, you’re going to hurt the basic public systems so crucial to moving forward together in the future.

Who Pays For These Services… And Who’s Getting Off The Hook?

How do we pay to educate our kids, help the vulnerable, and keep ourselves safe? The vast majority of the money comes from the personal income taxes we pay. In fact, 84% of the money for the basic state budget comes from personal income taxes–that means individual Oregonians and small businesses.

It didn’t used to be quite that way. Back in the mid-1970s, profitable corporations operating in Oregon paid a much bigger share. The chart to the right shows the share of all income taxes paid by profitable corporations in the mid-1970s compared to today. Back then, profitable corporations paid 18.5 percent of our income taxes. Today, they pay just 6 percent.

Did you know that the corporate minimum income tax in Oregon is just $10? And that the minimum $10 rate hasn’t changed since 1931? Right now there are corporations in Oregon making millions of dollars–and only paying $10 in income taxes.

And guess who picks up the slack when profitable corporations pay less? Individual Oregonians and small businesses.

But some of us are getting a better deal than others. This chart shows the tax rate paid by poor Oregonians, middle-income Oregonians, and the wealthy. This is total state and local taxes people in these groups pay on average, as a share of their income. Wealthy Oregonians–people whose incomes average over a million dollars–are the ones who can afford to pay the highest rate without much real hardship, but they aren’t even paying as much as families who struggle just to get their basic needs met.

So we have some problems with fairness in our tax system. Profitable corporations and high-income households have gotten off pretty easy the last few decades.

So, How Did We Get Into This Crisis?

When the national economy fell apart, Oregon’s economy went down with it. Because of the national economic crisis, Oregonians as a whole are making less money, due to unemployment and the loss of hours and wages. Simply put: If you make less income, you pay less in income taxes.

This chart shows what it looks like: The top line represents the amount of money Oregon needs just to maintain the levels of basic services it provided before the recession hit. Back in June of last year, it looked like we were going to have just about enough money to pay for our existing services over the next couple years. But things got much worse. As of the last official estimate, in late February, we had 19% less money than we need just to keep doing what we were doing before the recession hit. And things have gotten even worse since then.

The Bottom Line

In simpler term: Middle-class families and vulnerable Oregonians are feeling the double whammy from this recession (their incomes are down and the state services they need are being cut), but profitable corporations and the wealthy are continuing to carry less of the burden.

Getting through this crisis will require a balanced approach that protects the vulnerable and makes sure that those who have benefited most from the economy pay their fair share.