A Step Towards Retaining Retirees

I was asked the other day why we left Oregon. It was both an easy and difficult decision. The easy part was to turn my back on the tax and spend philosophy of Oregon state government – particularly under an unbroken, nearly four decades, of Democrat governors – each one more progressive (irresponsible) than the last. The difficult decision was friends and family. Oregon is one of the best places in America run by some of the worst people in America. The new phenomena of people migrating to states based on the political climate coupled with generous welfare benefits cemented the tax and spend philosophy of the progressives and the resulting super majority dominance of progressives in state government that immunized them from accountability when one bad idea after another failed either in its intention or its implementation.

I was retired. Hard work and prudent investments had left us with a comfortable nest egg. One of the things that progressives never seem to learn is that money brings mobility. As Portland began to raise all sorts of taxes I left Multnomah County, and when the state legislature began to do the same thing, I left Oregon. It wasn’t just the escalating income tax, it was that plus the state inheritance tax. The fact that I had to pay state taxes on federal taxes (the amount in excess of the maximum deduction allowed) plus pay inheritance tax upon income that we had already paid Oregon an income tax was ridiculous. And it went well beyond nuisance to the point of an ongoing irritant. (Oregon exempts the first $1,000,000 and thereafter the tax rapidly moves from ten percent to sixteen percent.)

Oregon’s inheritance tax is the result of a loophole in then existing federal estate taxation. The entirety of Oregon’s inheritance tax could be be credited against any federal estate taxes levied thus allowing the state to step into the feds place and receive the revenue without increasing the overall “death tax” burden. When the feds increased the amount of an estate exempt from taxation, it also repealed that provision. Thirty-five states, most of them west of the Mississippi River, thereafter repealed their inheritance tax. Not even California has an inheritance tax, although I suspect that the concentration of significant wealth in the politically powerful families of California (Pelosi, Feinstein, Newsom, Brown, the twenty millionaire California members of Congress, the Silicon Valley billionaires, the Hollywood phonies and the real estate maggots) overcomes the lust by progressives for everybody else’s money. Be that as it may, Washington and Oregon stand alone in the West in pursuing this abusive tax.

It is abusive because it taxes assets purchased by income already taxed. It is abusive because, contrary to progressives’ beliefs, it is private capital – not government handouts – that power economic growth and job creation and when that source of private capital departs it reduces the capital available in Oregon. It is abusive because it assumes that everybody with a net worth in excess of $1 million is the same – idle rich sipping pina coladas by the pool in Mexico. (Oops, that’s my mistake, those were retired public employees comfortable in the fact that no matter how poorly private citizens are doing in Oregon, their largess will continue to flow from state and local governments.) It is abusive because little or no attention appears to be paid to the loss of annual income tax revenue over the life span of those who leave which may offset the loss of estate taxes particularly on the lower end of the continuum of estates exceeding $1million.

Prior to the tax reform act introduced by President Donald Trump, the amount of an estate exempt from federal inheritance taxes was about $5.5 million – a figure that was adjusted annually for inflation and currently would be about $6 million currently. However, Mr. Trump’s tax reform package doubled that amount to about $11 million which adjusted annually for inflation would be about $12 million. (The fact that anything associated with Mr. Trump causes progressives to fly into an irrational rage, let’s just focus on the exemptions prior to his tax reform act.)

A report by the Oregon Legislative Revenue Office based on 2018 data, shows that there were 2,015 estate tax returns filed in Oregon – a quarter of which were for estates less than $1 million and produced not a dime of revenue. There were an additional 1,362 returns filed for estates valued at between $1 million and $5.5 million which produced produced $21,392,250 – basically 11.5 percent of the total estate taxes collected. (The number of returns filed decreases as the value of the estates increase – 5 percent of the returns account for 52 percent of the revenue produced and just 2 percent of the returns account for 42 percent of the revenue.)

The point here is that increasing the amount exempt from the estate tax to match what it would have been if it mirrored federal exempt amount prior to Mr. Trump’s tax reform would only reduce the amount of estate tax revenue by $21.392,250 which is less than 0.03 percent of the total budge of Oregon.

I have no idea whether such an increase in the exemption will toll the outward migration of retirees but it certainly would not hurt. It would not hurt and its overall revenue impact on Oregon state government would be de minimus.

There is an election coming this year in Oregon. One that will replace the currently worst example of the progressive mind set in Governor Kate Brown (D-OR) as well as determine the makeup of the state legislature. The current crop of Democrat candidates seeking to replace Ms. Brown spell more of the same irresponsible tax and spend philosophy. It may be pointless to ask the Democrat candidates but it is a legitimate question to ask the Republican office seekers as well as what appears to be the leading candidate to replace Ms. Brown – Rep. Betsy Johnson, a newly minted Independent and an historical fiscal conservative.

But this is Oregon – one of the best places in America run by some of the worst people in America.