Estate Taxes, Migrating 65+ Population, and the Money We Leave Behind

The Economic Impact to Oregon

Summary

Oregon has the lowest estate tax exemption threshold and the third highest tax rate. Any changes to the structure of the tax will impact state revenue, state government spending availability, and individuals’ and business owners’ decisions to live and operate in Oregon.

Key Findings

• Oregon’s estate tax collections have more than tripled over the past decade.
•  Oregon is one of 12 states with an estate  tax. 
• The state has the lowest exemption threshold and third highest estate tax rate.
•  At current trends, the number of estate tax returns will grow by 282% relative to the number of returns in 2022 compared with population growth over the same period of just 20% and the 65+ population up 46%.
• The number of deaths subject to estate tax liability will be present will more than double over the coming 25 years, from 5% today to 12% in 2050.
• Currently, Oregon’s exemption threshold is fixed. If the threshold had been indexed in the past, estate tax liability would be much lower. Indexing since 2002 would have resulted in a threshold of:
  •  $1.8 by consumer price; 
  • $5.2 million by the S&P 500; and 
  • $3.1 million by home values.

• Modeling results suggest the state’s estate tax is correlated with fewer individuals aged 65 and over in the state.
•  Phasing out the estate tax would eventually equate to:
  • 116,000 more individuals in Oregon
  • 54,000 more employed individuals in Oregon
  • 35,000 more individuals in the labor force
  • $11.3 billion in GDP
  • $19.2 billion in sales (output).

Introduction

In contrast to 38 other states^[i], Oregon imposes an estate tax in addition to the federal estate tax. Not only does Oregon impose an estate tax, but it is also arguably the most burdensome in the nation. Oregon has the lowest tax threshold in the country with estates taxed at relatively high rates. 

Although growing estate tax collections are providing support to General Fund resources, Oregon’s estate tax system has become increasingly divorced from the federal estate tax and the systems in other states over time. With a rapidly aging population and rising wealth, this could provide an incentive for households to leave Oregon going forward.

Background

The state of Oregon imposes an estate tax on estates with a value of $1 million or above. For the 2024 tax year, the Oregon estate tax rates range from 10% to 16%, depending on the value of the estate. The tax is calculated on the portion of the estate that exceeds the $1 million exemption threshold^[ii]. The tax rates are:

•  $1 million to $1.5 million: 10%
• $1.5 million to $2.5 million: 10.25% to 10.5%
•  $2.5 million to $3.5 million: 11% to 11.5%
• $3.5 million to $4.5 million: 12% to 12.5%
• $4.5 million to $5.5 million: 13% to 13.5%
• $5.5 million to $6.5 million: 14% to 14.5%
• $6.5 million to $7.5 million: 15% to 15.5% 
• Over $7.5 million: 16%.

In comparison with other states, Oregon has the lowest exemption threshold and the third highest maximum tax rate (Table 1).

Table 1^[iii]

Oregon Estate Tax Collections

Oregon’s collections of estate tax have more than tripled over the past biennium, increasing from $102 million in Fiscal Year 2012 to $339 million in Fiscal Year 2024 (Figure 1). Should this trend persist, revenue from the estate tax will reach $471 million by Fiscal Year 2030. Prior to this recent surge, estate tax collections had been relatively stable for many years at a level of around $100 million per year. Although the number of deaths in Oregon has risen over the past decade, demographics alone cannot explain this growth. In part, a larger share of estates are now falling above Oregon’s taxable threshold. The threshold has been fixed, while net worth has grown for many households. A more significant factor in the growth of overall collections has been large gains in net worth among Oregon’s wealthiest households that are often subject to the 16% top rate. Although these filers are few in number, they account for nearly one-third of overall tax collections. Wealthy filers have a much larger share of their net worth accounted for by stocks, business income and other investment instruments all of which have been on an extended bull run.

Figure 1

Figure 2

Who Pays Oregon’s Estate Tax

The estate tax is imposed on estates valued above $1 million. When measured by count of returns, the largest group of estate taxpayers fall within the group of estates valued between $1 to $1.5 million. In 2022, there were 1,012 such returns, or 46% of all filers (3). However, not all estate tax filers end up owing tax. Estates passed on to a spouse are not taxable, nor are charitable contributions. Also, farm and natural resource assets are largely exempt. Excluding filers who did not owe tax, estates valued between $1 to $1.5 million made up 32% of filers.

Figure 3

When measured by the share of estate tax collections, the estate tax is top heavy, with 32% of 2022 tax payments stemming from the small group of filers with estates valued above $9.5 million (4). Once again, not only are the wealthiest filers subject to a higher tax rate, but they also have a larger share of their portfolios made up of investments such stocks and business income which tend to grow at faster rates than other assets.

Figure 4

Figure 5

Figure 6

Who Will Pay Oregon’s Estate Tax in the Future?

Not only is Oregon’s estate tax exemption threshold low relative to other states, but it is also fixed, remaining unchanged over time. Since the threshold fails to adjust for rising inflation and growing wealth, Oregon’s estate tax will capture an increasingly large portion of the population over time. Using estimates for projected deaths and number of estate tax returns, at current trends, the number of deaths subject to the estate tax will grow by 282% from 2022 through 2050 (Figure 6), with the percentage of deaths subject to the estate tax growing from 2022’s 5% to 12% by 2050 (Figure 6).

Figure 6

What Generates Estate Tax Liability?

Oregon’s estate tax return requires filers to itemize the composition of their estates (recapitulation, Part 5), allowing us to trace the sources of tax liability. The sources of liability differ greatly across tax brackets (Figure 7). For example, real estate values per filer are larger for each bracket between $2.5 million to $7.5 million than they are for filers in the top tax bracket, who report taxable estates larger than $9.5 million.

Figure 7

Inflation-Adjusting the Estate Tax Threshold

Oregon’s current $1 million estate tax exemption threshold became effective for decedents’ estates beginning in 2002[iv]. Since 2002, the value of the median home in Oregon has risen 211%, the value of the S&P 500 has increased 419%, and consumer prices have risen 80%. As mentioned in the previous section, but for an adjustment to the exemption threshold, an increasing number of decedents will be subject to the estate tax. Indexing the $1 million threshold by the value of a home to 2002 would equate to a threshold of $1.8 by consumer price, $5.2 million by the S&P 500, and $3.1 million by home values. 

Figure 8

State Revenue Impacts

If the estate tax threshold is raised due to indexing or other policy changes, General Fund revenues would be reduced, at least in the near term. In our inflation example, had the threshold been indexed to the CPI since 2002, collections would have been $223 million, or about 31% lower than actual collections in 2022 (ignoring the dynamic impact from more retired individuals in the state). The approximately $101 million tax cut (on a static basis) would have mostly gone to smaller estates valued at less than $3.5 million (about 75% of the tax cut). It should be noted that a higher threshold lowers taxable net worth for all tax brackets, not only those that would no longer owe taxes.

A secondary impact of booming estate tax collections is that they have contributed to generating a larger kicker credit in recent years. Notably, a filer’s estate tax payments do not directly impact the size of an individual filer’s kicker credit. The credit is allocated according to income tax liability, not other payments dedicated to the General Fund, even though these payments are included when assessing the overall size of the rebate.

The Demographic Impact

A key issue going forward is whether individuals that may soon be subject to Oregon’s estate tax choose to leave the state to avoid paying it. While there are avenues to manage around the estate tax such as establishing family trusts, a large upcoming estate tax bill may tip the scales for households that are considering relocation anyway.  CSI modeled the impact on migration using annual estimates of the number of individuals in each age group (of one year) by state from 1980 to 2023^[v].

The result of the simple panel regression indicate that states with an estate/inheritance tax are missing, on average, 8,732 individuals aged 65 and over compared to states without an estate/inheritance tax. This suggests that Oregon’s estate tax may be incentivizing elderly individuals to relocate to states with lower or no estate taxes, potentially leading to broader economic consequences.

Further supporting this, Bakija and Slemrod (2004)^[vi] provide strong empirical evidence that high state estate taxes significantly reduce the number of high-net-worth elderly individuals residing in those states. Their research, which analyzes federal estate tax return data from 1965 to 1998, finds that a one percentage point increase in a state’s estate and inheritance tax rate leads to a 1.4% to 2.7% decline in the number of federal estate tax returns filed in that state. For estates valued over $5 million, the number of federal estate tax returns filed in a state decline by nearly 4% for each one-percentage-point increase in the estate and inheritance tax rate. These findings are in line with our regression results, suggesting that Oregon’s estate tax structure is likely contributing to the outmigration of retirees.

Additionally, tax-related migration behavior is not unique to estate taxes. A relevant study by  Shan (2010) [vii]onproperty taxes and elderly mobility provides further evidence that tax burdens significantly influence relocation decisions. Shan’s research finds that a $100 increase in annual property taxes leads to a 0.73 percentage point increase in the two-year mobility rate of homeowners over 50, representing an 8% increase from the baseline mobility rate. This suggests that tax-related financial burdens—whether ongoing (property taxes) or one-time (estate taxes)—can have a measurable effect on migration.

Although property and estate taxes operate differently, both contribute to the financial considerations of older individuals. Property taxes impose a continuous cost, while estate taxes affect the wealth transfer decisions of high-net-worth individuals. However, both taxes create incentives for relocation. If elderly homeowners respond to relatively small property tax increases by moving, they may be even more likely to relocate in anticipation of an estate tax that could significantly impact their heirs. Given that Oregon has the lowest estate tax exemption threshold ($1 million) and the third highest tax rate (10%-16%), the state may be experiencing a migration effect similar to that observed by Shan’s property tax study.

By applying this framework, the outmigration of older individuals in Oregon may not just be a result of estate tax liability at the time of death but also a proactive decision to relocate before their estates become taxable, similar to how elderly homeowners respond to property tax burdens. This reinforces the argument that Oregon’s estate tax policy may be contributing to the decline in its older population.

Table 2

As a further check on the demographic movement of the 65 and over population, we performed a Lasso regression that included fixed effects for each state and the temperature of each state (acknowledging that states such as Florida and Arizona attract older individuals due to its milder climate). The results are shown in Table 3. The -0.027 result suggests that states with an estate and/or inheritance tax generally have 2.7% fewer individuals aged 65 and over as a percent of their population. Converting the 2.7% to the number of individuals aged 65 and over is approximately 120,000 older individuals, which is much higher than the conservatively estimated 8,732. To be conservative on the impact, we used the 8,732. Interestingly, the results in Table 3 closely corroborate the economic impact results estimated using REMI in the following section. 

Double-selection linear model         

Number of obs               =      2,200

Number of controls          =         51

Number of selected controls =         50

Wald chi2(1)                =     918.20

Prob > chi2                 =     0.0000

Robust

Table 3

The Economic Impact from the Demographic Impact

Given that individuals aged 65 and over participate in economic activity, Oregon’s missing 8,732 people impacts the broader economy. 

Using Regional Economic Models Incorporated’s (REMI) dynamic multiplier system, we estimated the economic impact of the missing 8,732 individuals. The results suggest that by 2035, the cumulative impact (Figure 2):

• 125,000 fewer people in Oregon
•  59,000 fewer employed individuals in Oregon
•  39,000 fewer people in the labor force
•  $6.3 billion less in GDP
• $10.5 billion less in sales (output).

Figure 9

The Dynamic Revenue Impact from the Demographic and Static Budget Impact

Because the State of Oregon generates revenue from its estate tax, the revenue gets spent by policymakers, and that spending circulates through the economy and generates economic activity in and of itself. 

In contrast, missing individuals represent forgone tax revenue, meaning Oregon is missing revenue from other revenue sources it could collect if it decided to phase-out its estate tax. 

At some point, enough people are missing from Oregon due to the estate tax that the missing revenue is greater than the revenue generated by the estate tax. The two effects were input into REMI as, first, a reduction in static government spending by the amount of the estate tax and growing by 10% in each year thereafter, and second, an increase in the initial population aged 65 and over by 8,732.

The results suggest the net impact of the two forces by 2035 (Figure 10):

•  116,000 more individuals in Oregon
• 54,000 more employed individuals in Oregon
•  35,000 more individuals in the labor force
• $11.3 billion in GDP
• $19.2 billion in sales (output).