News coverage of legislatures tends to focus on bills that pass and what the consequences of those bills – good or bad – will be.
Today, I want to focus on a bill that probably will not pass. House Bill 2031 would raise the ceiling on how much wealth is exempt from Oregon’s aggressive estate tax from $1 million to $7 million.
There are several reasons this bill should pass, but the most important one is that Oregon’s lowest-in-the-nation ceiling exposes many people who own a home in high-cost cities outright when they die to the estate tax and encourages those with a choice to flee the state.
So, why do I say this bill is unlikely to pass? Because there are proposals to either reduce or eliminate the estate tax almost every session. Yet, nothing significant ever happens. HB 2301 is less ambitious than many of those proposals. As recently as 2023, the Legislature made minor changes to the estate tax affecting a small number of taxpayers. And HB 2301 was granted a public hearing February 6, something that doesn’t always happen.
Still, it’s unlikely to pass because reducing the estate tax simply does not fit the preferred narrative of the only political party in Oregon that is able to guide bills through the legislature. It also would reduce revenue coming into state coffers, something Oregon Democrats always are reluctant to do.
There is hope, however, that Oregon Democrats eventually could come around.
1. The narrative that the estate tax is only paid by the rich is false. The $1 million exemption has remained the same as housing values (the biggest source of most estate-tax payers’ wealth) have soared.
2. Though the transformation of the Democratic Party in Oregon has been slower than nationally, national Democrats are become more open-minded about wealth as the party becomes the home of many high-income college-educated voters.
3. Oregon’s estate tax is the most aggressive in the nation. While some states have higher top rates on estates, Oregon has by far the lowest ceiling on the value of an estate before taxes kick in, which means a higher percentage of taxpayers are subject to the tax that in other states. That’s the issue that HB 2301 tries to address.
Some quick context: Only 17 states (plus the District of Columbia) impose taxes upon death. Oregon is one of the 12 states that impose excise taxes, aimed at the estate of the deceased. Six states impose inheritance taxes, which taxes those who inherit the wealth rather than the estate itself. Maryland has both taxes (ouch).
Direct comparisons are difficult because most states with estate taxes have schedules that access the tax at varying rates for different income levels. The exemption thresholds are lower for inheritance taxes than for estate taxes because most people with wealth divide their assets among multiple individuals or organizations when they die.
Details for each state are available at this link.
It also must be noted that all estates valued at more than $13.6 million are subject to a federal estate tax.
Now, back to Oregon’s excise tax. The exemption ceiling was set at $1 million in 2006 when the median home price in Oregon was about $270,000. Today, it is about $490,000. The median homeowner is almost halfway to the threshold for triggering the estate tax, assuming they have paid off their home. Now, consider most people in the private sector no longer have defined-benefit pensions, which means they need to save more for retirement. They don’t need to have much of their retirement nest egg left over at death to trigger the estate tax.
If you are the founder of a Fortune 500 company or even an All-Star athlete, you’ll still have plenty of money left over after paying the estate tax. And that’s who pays most of the estate tax. It takes 7,180 taxpayers with a $5 million estate to equal one Phil Knight, who has an estimated net worth of $35.9 billion. (These calculations do not take into consideration the possibilities of exemptions and legal accounting maneuvers).
If Oregon wants to collect more money through the estate tax, it should be encouraging economic policies that will attract and retain entrepreneurs who will become the next Phil Knight and not only create a great company but also build and keep it in Oregon. Instead, we have created a tax and business climate that encourages entrepreneurs to look elsewhere and high-net-worth retirees to leave.
Interesting note: Phil Knight is not the wealthiest person who came from Oregon. That would be Nvidia co-founder and CEO Jensen Huang, who graduated from Aloha High School and Oregon State University. Huang’s estimated net worth is $113.8 billion, but he and his company reside in California.
Huang and Knight each undoubtedly have many reasons for where they live and where their companies are based. And, as noted as earlier, when you have as much money as them, a 10 percent estate tax is all but inconsequential.
But for someone who bought an average house in a typical suburban neighborhood, contributed regularly to their 401(k) and died with a modest nest egg of $2 million to divide among children and grandchildren, paying 10 percent off the top to the state makes a real difference. So, what do those people (labeled “The Millionaire Next Door” in a 1996 book) do?
Though migration data are difficult to interpretate (because of relatively low sample sizes and high volatility) both trends and anecdotal evidence suggest those who have a choice increasingly are choosing not to die in Oregon.
In each decade from the 1990s through the 2010s Oregon ranked 12th in the nation in population gain. Reflecting a national trend of fewer people moving, the growth rate dropped each decade, from 20.4 percent in the 1990s to 10.6 percent in the 2010s. For more detail on migration from the Census Bureau, click on this link.
In the 2020s, people have started moving again – driven first by Covid and employers’ increased acceptance of remote employees but also by a rapidly growing number of retirees. At the same time, Oregon has seen its share of migrants plunge, according to estimates from both Portland State University and the Census Bureau. These shifts in migration come as deaths are exceeding births in Oregon (also a national trend), meaning without positive migration, the state’s population and tax revenues will drop.
It’s impossible to know the motives of those who are moving or to know if the trend will hold. But under its existing regulatory and tax structure, Oregon has few arguments for why wealthy residents should stay in the state and pay its estate tax instead of leaving that money to heirs and causes of their choosing. State government certainly cannot argue that it will be a good steward of that money.
Raising the level at which the state begins to tax estates would be one step toward convincing retirees and others that Oregon is a place to be.
This article originally appeared in the Oregon Roundup.