Oregon Estate Tax Reform | Tax Foundation
Benjamin Franklin once said that death and taxes are the only things certain in life. Death taxes are usually avoidable, at least when it comes down to state-level inheritance taxes. The easiest way to avoid them would be to move to a state that has a lower
taxAn income tax is a mandatory charge or payment collected by local, national, and state governments from individuals and businesses to cover costs of government services, goods, or activities.
In recent years, many individuals have done just that, leaving the 17 states that still impose these taxes at a competitive disadvantage in the interstate migration race. Oregon is one of the 12 states that imposes an estate taxes. An estate tax is imposed based on the net value of a person’s taxable estate at the time of their death, after any exclusions and credits. The estate pays the tax before assets are distributed.
. This tax falls into the category of bequests taxes and is applied to a deceased taxpayer’s estate if it exceeds a certain threshold. In Oregon, this threshold is set at $1 million–the lowest in the nation (see figure below for cross-state comparison)–impacting not only the wealthiest households but also many upper middle-income families whose assets have appreciated in recent years due to
inflationInflation is when the general price of goods and services increases across the economy, reducing the purchasing power of a currency and the value of certain assets. The same paycheck will cover less goods, bills, and services. It is sometimes called a “hidden” tax, as it makes taxpayers less wealthy due to increased costs and “bracket-creep”, while increasing government spending power.
and favorable conditions in the real estate and financial markets. Oregon’s estate taxes are progressive with 10 brackets. The top rate of 16 percent is lower than in Washington and Hawaii (both at 20 percent) but higher than in Connecticut and Maine (both at 12 percent).Oregon’s estate tax does not generate a significant amount of revenue for the state’s budget. In the proposed budget for the biennium, it is estimated to bring in $700 million or less than 2 percent general fund revenue. This revenue is also at least partially offset by income and other taxes that the state does collect when a taxpayer moves years before death to avoid future estate tax. The 2025 session is expected to be very active in the estate tax space in Oregon. H.B. 2058, H.B. 2112, H.B. 2301, H.B. 2362, H.B. 3737, S.B. 380, S.B. 405, S.B. S.B. The proposed estate tax bills for the 2025 sessionMost bills maintain the current estate tax rate schedule which ranges between 10 and 16 percent. Only one bill, H.B. This schedule is simplified by 2301, which transitions to a flat tax rate of 7 percent. This change would greatly improve simplicity and transparency compared to the current system or other proposals, making Oregon the state with the lowest estate tax rate (currently, the lowest top rates are in Connecticut and Maine, both at 12 percent).Three bills (H.B. 2058, S.B. S.B. The estate
tax exclusion (A tax exemption is a tax that excludes certain income or revenue from taxation, or even certain taxpayers) has been increased. Internal Revenue Service (IRS) grants tax-exempt status to nonprofits that meet certain requirements. This allows them to avoid paying income tax.
would roughly match the federal amount and give Oregon the largest tax exemption in the nation, equal to Connecticut. Three other bills (H.B. 2112, H.B. H.B. 380) introduces a floating exemption for estate taxes, ranging between $1.5 million for estates up to $4.5 millions and $0 for estates worth $8.5 million or higher. H.B. 3737, a bill that would raise the exemption to $4 million and adjust it annually for inflation, aims to do this. 3737, seeks to raise the exemption to $4 million and adjust it annually for inflation.
Our calculations project Oregon’s estate tax liability for different estate values (ranging from $5 million to $25 million) under the proposed bills. All the bills reduce the tax liability on smaller estates. H.B. H.B. H.B. 2301 institutes an
flat income tax. An income tax is called a “flat income tax” when it is applied to all taxable income, regardless of the income level or assets.
rate.When evaluating these bills Oregon legislators should take into consideration the competitive tax landscape of the state and interstate migration patterns. According to IRS data, Oregon is currently ranked 34th for net migration, and it loses the majority of its taxpayers to Washington state, Texas, Arizona Florida and Idaho. Except for Washington, which does not impose income tax, none of these states have an estate tax. Most also have simpler income taxes with lower rates. Oregon’s outmigration is a worrying trend, especially for taxpayers who are approaching retirement age (55-64) and are the most likely to move. According to our analysis of the latest IRS data, individuals in this age range with incomes above $200,000 are the main contributors to gross Income.
outmigration. This group is responsible for 52 percent of all adjusted gross income losses due to interstate immigration, or $532 million by 2022. Estate taxes raise revenue from high-net-worth residents who remain, but lose revenue elsewhere in the system by driving other high-net-worth taxpayers away.Nearly 52 Percent of AGI Loss in Oregon is Due to the Outmigration of Wealthy Taxpayers Approaching RetirementNote: In 2022, total net adjusted gross income (AGI) loss due to interstate migration in Oregon was $532 million.
Oregon’s obsolete estate tax system is in need of comprehensive reform. With the lowest estate tax exemption in the nation and a high top rate of 16 percent, the state creates an unfavorable environment for retirees–particularly small business owners–who increasingly consider relocating to other states with more favorable death tax regimes. To prevent taxpayer outmigration, a common trend in states with estate taxes, Oregon should combine the ideas introduced in multiple bills described above and consider increasing its exemption threshold and indexing it for inflation, lowering the tax rate (and making it flat for simplicity), and ultimately moving toward repealing the estate tax to remain competitive with regional neighbors like Idaho, Washington, and Nevada.Stay informed on the tax policies impacting you.Subscribe to get insights from our trusted experts delivered straight to your inbox.
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