The recently failed ballot measure to fund enhanced Cherriots service in Salem with a modest payroll tax elicited much hand wringing in certain circles about the measure’s “unfairness” to the business community.  The Chamber of Commerce decried the proposal as a threat to small business and claimed, disingenuously, that the State of Oregon was not included in the tax, even though it pays Cherriots five million dollars per year in lieu of taxes.  It would be much better, the Chamber argued, to fund Cherriots with a property tax levy that would have to be renewed after five years.

How a property tax levy would be fairer than a payroll tax remained unclear.  It would not have impacted the State, which, as before, would pay no property tax in Salem.  In addition, since the property tax is a flat tax that impacts all property owners, regardless of income, it is, in fact, very regressive.  The Chamber’s proposal also did not address the growing problem of “compression,” which results from local property tax rates on many properties reaching the legally-mandated cap of ten dollars per thousand.  Such limitations on property tax rates have undermined the long-term utility of the property tax as a means of financing the City’s general fund services such as the police, fire, and parks departments, the library, and residential street maintenance.

To find revenue to cover growing funding gaps, cities like Salem are forced to introduce new “fees” that enable it to pay for basic services. These include “franchise fees” levied on local utilities and the recently introduced “streetlight fee” to help cover lighting and street maintenance costs.  Salem’s plight is part of a statewide pattern.  As the Oregon Center For Public Policy recently noted, though state and local taxes are lower here than in most other states, Oregon also ranks eighth highest in terms of fees and charges levied by state and local governments to cover operating costs.  While in Oregon such charges absorb 6.2 percent of personal income, the nationwide average is 4.6 percent.

Fees and charges, like property taxes, tend to be levied at a flat rate.  Like sales taxes, they are therefore unfair to low income residents, who pay the same rates as wealthier people.  It is true that some flat taxes might serve purposes other than raising revenue.  Property tax revenue, for example, tends to be more stable than income taxes, making it easier for governments to plan.  Sales taxes and fees can discourage certain behaviors, such as smoking, drinking, or consuming too much of some precious resource.  All of these taxes, however, are easier for the rich to bear than for the poor.  In that sense, they are unfair.

A much more socially just way to raise the revenue for local government is the progressive income tax, which many cities in the U.S. employ.  Salem could radically roll back property taxes and fees and simultaneously raise the income it requires by introducing a graduated income tax on all those who live or work here.  Such a tax would, for the first time, raise money from state employees who regularly use local services but pay no taxes in Salem.  Even more importantly, it could be structured to exempt the poor, to be “revenue neutral” for those in the middle, while raising rates on Salem’s wealthiest households.  Such a system would be a boon to people on low or fixed incomes, and would enable Salem to reverse decades of decline in the provision of many core services.

Salem Weekly editorial board members:

Russ Beaton, Jim Scheppke, William Smaldone, Naseem Rakha, A.P. Walther.