Proposed Estate Tax Changes in Oregon: A Long-Overdue Reform?

Benjamin Franklin famously said that nothing is certain except death and taxes. Death taxes, however, are often avoidable—at least when it comes to state-level estate taxes. The simplest way to avoid them is to relocate to a more taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. -friendly jurisdiction upon retirement or before receiving a bequest. 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 12 states that impose an estate taxAn estate tax is imposed on the net value of an individual’s taxable estate, after any exclusions or credits, at the time of death. The tax is paid by the estate itself before assets are distributed to heirs. . This tax falls under the category of bequest taxes and applies to a deceased taxpayer’s estate if its value 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 covers less goods, services, and bills. It is sometimes referred to as a “hidden tax,” as it leaves taxpayers less well-off due to higher costs and “bracket creep,” while increasing the government’s spending power. and favorable real estate and financial market conditions. Oregon’s estate tax is 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 biennial budget, it is expected to bring in about $700 million, less than 2 percent of general fund revenues. This revenue, moreover, is at least partially offset by the income and other taxes the state does not collect when a taxpayer relocates years before their death to avoid the future impact of the estate tax.

The 2025 session is expected to be very active in the estate tax space in Oregon. Several bills have been proposed, most of them heard in committees, and are currently under review by state legislators. These bills include H.B. 2058, H.B. 2112, H.B. 2301, H.B. 2362, H.B. 3737, S.B. 380, S.B. 405, S.B. 648, and S.B. 764.

Proposed Estate Tax Bills During the 2025 Session

Most of the bills maintain the existing estate tax rate schedule, which ranges from 10 to 16 percent. Only one bill, H.B. 2301, significantly simplifies this schedule by transitioning to a flat 7 percent tax rate. 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. 405, and S.B. 648) propose increasing the estate tax exemptionA tax exemption excludes certain income, revenue, or even taxpayers from tax altogether. For example, nonprofits that fulfill certain requirements are granted tax-exempt status by the Internal Revenue Service (IRS), preventing them from having to pay income tax. to approximately match the federal amount, which would give Oregon the largest exemption in the country, on par with Connecticut. Another three bills (H.B. 2112, H.B. 2362, and S.B. 380) introduce a floating estate tax exemption, ranging from $1.5 million for estates valued up to $4.5 million to $0 for estates valued at $8.5 million or more. One bill, H.B. 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 of the bills reduce tax liability for smaller estates. H.B. 2058 and H.B. 3737 (along with similar proposals) preserve the system’s existing progressivity since they retain the current bracket structure, whereas H.B. 2301 institutes a flat taxAn income tax is referred to as a “flat tax” when all taxable income is subject to the same tax rate, regardless of income level or assets. rate.

While evaluating these bills, Oregon legislators should consider the state’s competitive tax landscape and interstate migration patterns. Currently, according to the IRS data, Oregon ranks 34th in net migration and loses the most taxpayers to Washington, Texas, Arizona, Florida, and Idaho. Except for Washington (which forgoes an income tax), none of these states impose an estate tax, and most also have simpler income tax systems with lower rates. A particularly concerning trend for Oregon is the outmigration of taxpayers approaching retirement age (55-64), who are among the most likely to relocate. Our analysis of the most recent IRS data shows that individuals in this age group with incomes of $200,000 and above are the primary contributors to adjusted gross incomeFor individuals, gross income is the total pre-tax earnings from wages, tips, investments, interest, and other forms of income and is also referred to as “gross pay.” For businesses, gross income is total revenue minus cost of goods sold and is also known as “gross profit” or “gross margin.” outmigration. This group accounts for 52 percent of the total adjusted gross income loss due to interstate migration, approximately $532 million in 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 Retirement

Note: 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.

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