On May 16, Multnomah County voters will cast their ballots in a special election to decide the fate of a measure imposing a 0.75 percent capital gains tax to provide legal representation for tenants facing eviction. While the proposal aims to address a pressing issue in the region, it raises several questions about the impact of such a tax on the county and regional economic climate.
Capital gains taxes are generally imposed at the federal level, although some states levy their own taxes or apply their ordinary tax rates to these sources of income. To the best of our knowledge, there are no jurisdictions treating capital gains as ordinary income while also imposing a separate tax. It would be highly unusual and likely cause confusion and complexity in the tax code. Taxpayers would be forced to calculate their capital gains twice, for both taxes, creating unnecessary burdens and potentially dissuading investment in that jurisdiction.
It is important to note that Multnomah County already includes capital gains as ordinary income for its Preschool for All tax. In 2020, Multnomah County voters approved Measure 26-214, imposing a 1.5 percent tax on personal income above $125,000 (single filers) and $200,000 (joint filers) and a 3 percent tax on income above $250,000 (single filers) and $400,000 (joint filers), with the funds going towards providing free or low-cost preschool for all children in the county. The rates are scheduled to increase by 0.8 percent in 2026. Additionally, Oregon Metro includes capital gains as ordinary income in its personal income tax supporting homeless services.
If voters approve the latest Multnomah County ballot measure, the county could become the only jurisdiction levying a capital gains tax while also including capital gains in its income tax base. This would make Multnomah County’s tax system one of the most unique and complex in the world. Including capital gains in the income tax base, along with the proposed capital gains tax, would result in double taxation of this income, discouraging investment and potentially harming the county’s economy.
The proposed capital gains tax raises questions about the economic impact of such a policy. While proponents argue the tax would generate revenue to support legal representation for tenants facing eviction, opponents assert the tax would deter investment and harm economic growth in the region. In particular, the proposal could discourage people from living in the area, reducing the pool of households spending money in the local economy and contributing to government revenues. This could limit the county’s ability to fund projects, such as transportation improvements or affordable housing initiatives. Additionally, individuals and families leaving the region could undermine the area’s recently implemented taxes to support homeless services and universal preschool.
Although it is easy to dismiss Portland’s quirky tax structure as a local issue, local policy directly influences state revenues and the broader economy. The Portland metropolitan area makes up 60 percent of the state’s gross domestic product, and local economic and tax policies can have a ripple effect across the state. If tax problems lead to a decline in Portland’s economy, this could damage the state’s reputation and make it less attractive to investors, businesses, and visitors. For these reasons, the state needs to work with Portland to address tax problems and ensure the city’s economy remains strong and vibrant.
Taken together, these new and proposed taxes raise concerns about the overall tax burden on businesses and residents in the region. While addressing pressing social and economic issues is crucial, leaders must also be careful not to push the car over the cliff. That is, they must ensure that the tax burden is not so great that it discourages investment, stifles economic growth, and ultimately harms the region. Leaders must carefully consider the impact of new taxes on businesses and residents, and seek to strike a balance between generating revenue and promoting economic growth.