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The Capital Gains Bird Does Not Fly

Report
March 17, 2003By Jeff Thompson Download PDF

The Unmoving Case of Tax Cut Advocates

Executive Summary

Opponents of Oregon’s tax on capital gains income argue that many households move out of state, particularly to Clark County, Washington, to avoid paying the tax. These claims are overstated. The number of taxpayers with capital gains income moving to Clark County is quite small. Movement to Clark County is also largely offset by movement from Clark County to Oregon. Most households likely move to Clark County for other reasons than to avoid paying the capital gains tax, primarily housing affordability and school quality.

Analysis of tax and migration data suggests that few households move to Clark County to avoid the capital gains tax:

Even if there are households that move to avoid the tax, this does not mean that Oregon loses investment or jobs. The ease of restructuring investments makes it likely that the investments will remain in Oregon even if the owners move to Clark County.

According to the Legislative Revenue Office, reducing the tax from 9 percent to 4 percent would cost $319 million in the 2005-07 budget cycle. Because capital gains income is so highly concentrated among the affluent, most Oregonians would see little or no benefit:

That the richest one percent of households had $3.5 billion in capital gains income in 2000 and remained in Oregon, further suggests that the tax has little impact on migration.