Multnomah County Reports Preschool Tax Revenue Volatility Amid Capital Gains Fluctuations

The Multnomah County Board held a briefing on August 7, 2025, focusing on the financial implications of the "Preschool for All" tax, which has been in effect for several years. The meeting began with a presentation by Eric, who outlined key aspects of the tax code related to the preschool initiative, emphasizing that all income earned by residents of Multnomah County is subject to this tax, regardless of where it is earned.

Eric noted that the tax rate is set to increase by 0.8% starting in the tax year 2027, a change currently under evaluation. He highlighted a provision in the tax code that allows for deductions for pass-through businesses, aiming to prevent double taxation on income taxed through business income tax.

Following Eric's introduction, Jeff took over the presentation, providing a historical perspective on the tax's revenue collection. He explained that the preschool tax is relatively new, and to understand its financial impact, a simulated revenue history was created based on past income tax data. This analysis revealed significant volatility in revenue, with projections indicating potential declines and increases of up to 40% and 60%, respectively, in certain years.

Jeff pointed out that a major factor contributing to this volatility is the reliance on capital gains income, which can fluctuate significantly based on economic conditions. He shared data from tax year 2022, indicating that capital gains constituted about 17% of total income for taxpayers affected by the preschool tax, down from approximately one-third in the first year of the tax.

The presentation also included an overview of tax filings over the first three years of the preschool tax. Despite an increase in the total number of tax filers, there has been a decrease in the total amount of payments received. Jeff noted that the initial high collection levels were influenced by a spike in capital gains income, which was expected to normalize in subsequent years.

The meeting concluded with a discussion on the implications of these financial trends for future planning and the sustainability of the preschool program, highlighting the ongoing challenges of aligning an entitlement program with a volatile revenue source. The board plans to continue monitoring these developments closely as they prepare for the upcoming tax year.