Modest Sales Tax Could Make Oregon’s Tax System More Progressive
The recently issued report from Governor Kotek’s Prosperity Council stands out as much for its research into the Oregon economy as it does for its recommendations.
The report itself is just 32 pages, but it’s followed by hundreds of pages of survey results and economic research documenting the state of the Oregon economy, including comparisons to other states. It’s impressive and should be required reading for any policy maker working to improve Oregon’s competitiveness.
One finding really jumped out at me. If you include income taxes and sales taxes but exclude property taxes, middle income Oregonians have a higher effective tax rate than both Washington and California residents.
I already knew that Oregon’s tax system is regressive if payroll taxes are included. High state income tax rates are reached at relatively modest incomes. But high earners enjoy a payroll tax break when income surpasses $184,500 per year. The result is that Oregon high earners pay a lower effective tax rate than someone earning $50,000 per year. The Council’s finding comparing tax rates on the West Coast underscores how oppressive Oregon’s tax system has become for the middle class.
The Council also highlights another weakness in Oregon’s tax system: volatile tax revenues due to its high dependence on personal income taxes. Tax collections plunge when the economy is poor, forcing painful belt-tightening. During economic booms, revenues overshoot projections, triggering large kicker refunds. Neither of these outcomes is helpful. Everyone enjoys receiving a big kicker, but it ensures Oregon can never create a cushion for the next downturn.
To bring Oregon’s taxes more in line with its neighbors, the Council recommended restructuring personal taxes to include a sales tax (or the more business-friendly version, the value-added tax). People need to spend even when the economy is bad, so sales taxes tend to fluctuate less with economic cycles than income taxes, smoothing out tax revenues.
I’ve long opposed sales taxes because they place a larger burden on low- and middle-income people, who spend a greater share of their income on consumption. But after reading this report, I’ve changed my view, at least for Oregon’s system that already includes an income tax.
I now see that the path to a more progressive tax system doesn’t have to be a straight line. As everyone in New Orleans knows, sometimes you need to turn right to go left.
A modest 3 percent sales tax with exemptions for basics like food, medical care, and childcare could enable Oregon to eliminate income taxes entirely for all lower income people and many with middle incomes, making our tax system far less regressive.
Reforms like these are long overdue in Oregon and more urgent than ever in this time of unprecedented economic inequality.
The only question now is whether policy makers will let the Prosperity Council’s findings fade away or treat them as a legitimate path forward for Oregon.
All Democrats know is tax tax tax. Oregon is one of the highest taxes states in the nation. A comparison of all fifty states shows that Oregon has the lowest take home pay of all states due to high taxes and fees. Democrats blow millions of Oregon tax dollars on Illegals, DEI, and other leftwing programs. The real solution is bring balance back to Oregon, vote out Kotek and other Democrats.
At the close of 2025, Oregon had $1.9 billion in our Rainy Day Fund and $1 billion in the Education Stability Fund. These funds have accumulated despite the two largest kickers in Oregon history and haven’t been expended from in over a decade.
Oregon recently passed legislation (SB 1562 in 2024) to raise the cap on the Rainy Day Fund because it grew far higher than lawmakers previously anticipated it ever would.
I am honored to receive a comment from someone with a last name of Knopp. A number of years ago, Tim Knopp, the father of the kicker, published an op-ed in the Oregonian extolling the virtues of his creation. I responded with by own op-ed (see my June, 2021, post on this site) where I mocked Mr. Knopp’s reasoning and pointed out how the kicker exacerbates the regressive nature of the Oregon tax system by refunding the lion’s share to high-income people.
In your comment, you seem to be saying the kicker has not prevented Oregon from developing rainy day funds. You are correct to a point. But Oregon’s most recent economic forecast shows that in certain scenarios, these reserves would disappear in one biennium. In the worst-case scenario, one that mimics the bursting of the tech bubble in 2000 when revenues declined more than 15 percent in one biennium, these reserves are completely inadequate.
We are in Tech Bubble 2.0 right now with the mania around artificial intelligence. I am coming to believe Oregon could face revenue declines like those of the early 2000’s. Handing out nearly $1.5 billion in tax refunds mostly to high-income people at a time of record stock market levels, near-zero job growth, and an affordability crisis for the middle class, is the last thing we should be doing.