Multnomah County, Oregon Should’ve Called St. Louis Before Making This Mistake

Multnomah County, Oregon, which contains the city of Portland, recently approved a local income tax increase to fund tuition-free preschool. This measure will increase the local income tax by 1.5 percent for individuals who make over $125,000 and 3 percent for those that make over $250,000. Those of us in the city of St. Louis are all too familiar with earnings taxes such as this one. If Multnomah County had called St. Louis City, we could’ve told them that this local income tax increase is a bad idea.

In general, economic theory tells us that local income taxes have negative effects on population and economic growth in the cities that have them. Not only do these taxes discourage earning an income, but they are easy to avoid by moving or relocating businesses. This makes localities that have local income taxes less competitive relative to surrounding localities and encourages people to make the short move to where they can keep more of their hard-earned money.

We’ve seen this play out in the St. Louis area, especially regarding population; it’s fairly common to hear about people and businesses moving from the city to the county. St. Louis County does not have an earnings tax and the county’s population decreased by 0.46 percent from 2010 to 2019. The City of St. Louis, on the other hand, has a 1 percent earnings tax and has seen a staggering population decline for years. The city’s population decreased by 5.87 percent in the same period—that’s more than 12 times as much as the county. And just a little bit further from the city, St Charles county’s population increased by 11.12 percent in the same period.

Many factors can contribute to population decline; an additional tax on income is certainly one of them. Economic theory suggests that Multnomah County may see its local income tax hike have negative effects on population and economic growth. St. Louis can confirm that with experience. If they’d asked, we would’ve told policymakers this is a bad idea for their county.