Prosperity for whom? Oregon’s revenue reality check

by Marty Wilde

Gov. Tina Kotek’s Prosperity Council finished its work in June. The 33-page report warns that Oregon risks economic stagnation without change. The state sits second to last in the nation for job growth. Its unemployment rate has run above the national average for months.

So the council calls for lower taxes, fewer regulations, and a quarter billion dollars every two years for business-ready land.

The revenue pieces deserve a closer look. For 2027, the council recommends four modest changes it wants revenue neutral:

• Raise the corporate activity tax threshold
• Lift the estate tax exemption
• Expand the research credit
• Reconnect Oregon to a new federal capital gains break.

For the long term, a work group would report back in 2029 on a bigger overhaul, one critics read as a shift from income taxes toward a sales tax.

A serious talk about prosperity starts with three questions: Who pays? Who benefits? And who gets protected?

Oregon’s ‘constrained’ taxes

The council calls Oregon’s system a “one-and-a-half-legged stool” built on personal income and property taxes. There is truth in the complaint. Property taxes sit locked under Measures 5 and 50, with rate caps, compression, and limits on assessed value growth. Homeowners know those limits. Local governments know them better.

But “constrained” is not a neutral word. Those limits reflect choices Oregonians made at the ballot box. Some were wise. Some were not. All were deliberate. The same voters who capped property taxes have rejected a general sales tax nine times, most recently in 1993. They turned down gross-receipts taxes again in 2016 and 2024.

When advisers describe the system as too “constrained,” they mean it does not raise money the way they prefer, from the people they prefer.

Oregonians already answered the sales tax question, repeatedly

You can label it a “consumption tax.” You can wrap it in words like competitiveness and certainty. A tax on spending lands on groceries, clothing, and school supplies. Oregon’s income tax falls hardest on higher earners. A sales tax layered on top would push the burden down toward the middle and the bottom.

The council’s long-term plan hints at that trade, swapping income tax cuts for consumption taxes. Oregonians have said no to this bargain nine times. Rebranding the sales tax does not change the arithmetic.

We already have a sales-like tax

Here is what the debate misses. Oregon already runs a tax which behaves like a sales tax, aimed at large business. The Corporate Activity Tax charges $250 plus 0.57 percent of Oregon commercial activity above $1 million. The levy hits the volume of business a company does here, not its reported profit. Small firms and households fall below the line. Big retailers, manufacturers, and multistate chains do not.

That design was a choice. Voters rejected a broad sales tax reaching every shop and family. Lawmakers built a narrow gross-receipts tax on large firms instead. Many of those firms are skilled at reporting low Oregon profit. The CAT makes them pay something on the business they conduct here, whatever their accountants claim about net income.

This connects to the federal picture. For years, accelerated depreciation, generous deductions, and profit shifting have let household-name corporations post billions in revenue and near-zero income tax. Oregon rides along on that federal code. The CAT is one of the few tools the state holds to push back. In plain terms, it says do business here at scale and you will pay something.

The council wants to weaken that tool. Raising the threshold to $2 million and letting firms deduct the full cost of their goods and services would cost the state about $28 million a year. The CAT isn’t perfect and could use some modifications for specific types of businesses, but it avoids much of the gaming that has gutted Oregon’s corporate income tax.

Honest simplification means taxing activity, not profit

Oregon runs two corporate taxes. The profits tax and the CAT. The profits tax funds a modest slice of the General Fund and suffers the same measurement games which plague the federal system. If lawmakers want real simplification, there is a cleaner path than adding a consumption tax and gutting the CAT.

Drop the corporate profits tax. Lean on a stronger, better-tuned Corporate Activity Tax. That gives Oregon one main corporate base instead of two. Less room for profit shifting, because the bill hinges on receipts, not reported income. A clear link between a company’s footprint in Oregon and the taxes it pays here.

Set the CAT thresholds and rate to focus on large firms and shield small, local businesses. That approach honors the state’s long rejection of a broad sales tax. As a bonus, since it is more stable than the corporate income tax, it continues to fund critical services even during an economic downturn.

The estate tax and the piece everyone skips

The council also wants to raise the estate tax exemption from $1 million to somewhere between $3 and $5 million. The Oregon Center for Public Policy pegs the cost near $400 million and says the benefit flows to the top 5% of estates. In 2023, four in five estate tax returns came from estates under $2.5 million.

The pitch is familiar. Parents build a business. Children face a tax bill at inheritance. But the pitch skips a federal rule which does the real work: the stepped-up basis.

Under current law, when you inherit an asset—a timber tract, an apartment building, a family company, or a stock—the basis for capital gains resets to market value on the day you inherit. Every dollar of gain from the prior owner’s lifetime drops out of the tax base. Sell later and you owe tax only on growth since the inheritance, not on decades of appreciation.

The estate tax is the main mechanism which reaches that accumulated, untaxed gain at transfer. Remove the estate tax and keep stepped-up basis, and large fortunes in land, stock, and business pass down without ever facing tax on the growth which built them. Wealthy households understand this, which explains why they fight so hard to evade the estate tax.

There is a targeted fix. Raise the exemption or carve out relief for active, operating businesses. Then end stepped-up basis for those assets. Families who keep running the mill, the shop, or the farm face no immediate bill. Families who sell pay tax when they take the gains. The burden falls at the moment of sale, not the moment of grief.

As a bonus, the amount the state loses by reducing or eliminating the estate tax is comparable to the amount it gains by eliminating the stepped-up basis.

The politics of prosperity

The council could not agree on taxes. Its co-chair admitted the group was “not equipped to come up with the right answer.” So the hard choices land with the governor and the Legislature. Oregon still struggles to fund schools, behavioral health, and housing. Lawmakers watched voters reject last year’s transportation tax increases at the ballot in May.

There is a path which respects both the voters and the budget. Honor the repeated rejection of a general sales tax. Simplify corporate taxes around a strong CAT which makes large firms pay on the business they do here. Reform the estate tax for family business continuity while ending stepped-up basis, so accumulated gains stop escaping tax forever. Most importantly, don’t try to raise more money while doing it. Any reforms should be revenue-neutral. We’re talking about fairer taxation, not more taxation.

Prosperity means more than a business ranking. Prosperity measures whether the tax system asks everyone, including large corporations and wealthy estates, to pay a fair share. If we change the rules, we owe Oregonians an honest answer about who we change them for.

Marty Wilde represented central Lane and Linn counties in the Oregon legislature. For more of his Letters From A Recovering Politician, subscribe at https://martywilde.substack.com/subscribe.

Copyright (c) 2026 Marty Wilde. All rights reserved. Reprinted with express written permission of the author.