Oregonians must protect one of the few taxes on extreme wealth

Oregonians must protect one of the few taxes on extreme wealth

Oregonians must protect one of the few taxes on extreme wealth

[This commentary was first published in Street Roots.]

Recently, a bipartisan group of lawmakers tried short-circuiting the legislative process to deliver a coup on behalf of Oregon’s wealthiest. They attempted to send a bill repealing Oregon’s estate tax straight to the floor for a vote, skipping the usual review of legislation. Thankfully, the majority rejected this trick.

The incident, however, is a warning to Oregonians to guard against efforts to weaken the only real mechanism we have for taxing extreme wealth. Repealing the estate tax would eliminate a check against the expansion of an economic aristocracy, worsen the racial wealth divide, and undermine our ability to invest in services that benefit all Oregonians

When Oregonians first began taxing inheritances 120 years ago, it was a time much like ours. It was a time when a relative few captured much of the wealth produced by the many. Theirs was the age of Rockefeller and Carnegie; ours is the age of Bezos and Knight.

Today, three billionaires alone own about twice the wealth of the bottom half of all Oregonians. The value of the assets owned by one billionaire alone, Phil Knight, tops the combined value of all the stuff owned by half of all the state’s residents. Three-quarters of all the wealth in the state is held by the wealthiest tenth of Oregonians.

The return of extreme wealth inequality is the result of public policy choices, not least decisions weakening our tax system. Part of the reason why our nation was able to turn the page on the Gilded Age of the Rockefellers and Carnegies was because an earlier generation of Americans fought for and won a highly progressive tax system, one that asked proportionally more of the rich than the poor.

Capturing the mood of the Progressive Era, Teddy Roosevelt thundered in his famous Osawatomie speech: “The really big fortune, the swollen fortune, by the mere fact of its size, acquires qualities which differentiate it in kind as well as in degree from what is possessed by men of relatively small means. Therefore, I believe in a graduated income tax on big fortunes, and in another tax which is far more easily collected and far more effective — a graduated inheritance tax on big fortunes . . .” A key achievement of that era was the enactment of the 16th Amendment in 1913, allowing the creation of the federal income tax, and the establishment of the federal estate tax in 1916. By the 1950s, the top federal tax rate on the rich stood above 90 percent.

But over the past four decades or so, we allowed this highly progressive tax system to slip away. We let the rich re-jigger the tax system to their benefit. As tax researchers Emmanuel Saez and Gabriel Zucman explain, the “tax system in the United States has become a giant flat tax — except at the top, where it’s regressive.” As a share of income, the poor now pay a higher overall tax rate than billionaires.

Estate taxes are perhaps the most progressive form of taxation in use today, so it is no surprise that the monied elite have waged war against them. At the federal level, the estate tax is now a shadow of its former self. Not only is the tax rate lower than it was two decades ago, the wealthy can now shield millions more from its reach. So far, Oregon has held the line in protecting the estate tax, despite repeated efforts to weaken it or repeal it entirely.

These efforts to weaken or repeal the estate tax must be understood as proposals designed only for the benefit of the wealthy. On paper, Oregon’s estate tax only applies to estates worth over $1 million, but there are numerous ways that the wealthy can shield much more of their wealth. For instance, with a bit of tax planning, a couple can, in effect, pass on $2 million tax-free to their heirs. Oregon’s estate tax also includes a generous credit for farmland, forestland, or other natural resources if the estate is worth less than $15 million. The wealthy can also make yearly gifts to their heirs that also go untaxed.

So all in all, very few Oregonians are subject to the estate tax. It only affects the richest 5 percent of estates. Among those paying the estate tax, over half of the revenue comes from estates valued at more than $4.5 million.

Despite its narrow applicability, the estate tax generates significant revenue that Oregon uses to pay for essential public services. Right now, the estate tax contributes about half a billion dollars to the state budget, which funds our K-12 schools, higher education, health care, public safety, and more. Eliminating the estate tax, as the bipartisan group of lawmakers recently tried to do, would blow a big hole in state finances. It would mean chopping essential services like school funding or raising taxes on working folks to make up the shortfall. Either way, nearly all Oregonians would lose out, just so lawmakers could confer a big gift to the wealthiest families

Weakening or repealing the estate tax would also worsen wealth inequality and all of its attendant problems. It would further fuel the rise of an economic aristocracy, where power and wealth come not from effort or merit, but from having been born into extreme wealth. That’s a recipe for national decline.

Such intentional erosion of the estate tax would exacerbate wealth inequality along racial lines as well. Those who hold so much of the wealth are overwhelmingly white. The racial wealth gap is the product of centuries of racial exclusion and oppression, as well as ongoing forms of discrimination. Data exclusive to Oregon isn’t available, but national data shows that the typical white household has about $187,000 in wealth, while the typical Latino and Black households have wealth of $32,000 and $14,000 respectively. Repealing the estate tax would be a windfall for a small group of rich, white households, worsening racial inequality in the process.

At a time of extreme wealth inequality, it boggles the mind that some lawmakers would push to repeal or weaken the estate tax. Oregonians should be calling on these lawmakers to explain why they would go to bat for the wealthy, rather than working to create a tax system that serves the needs of all Oregonians.

Over a century ago, Oregonians came together to confront powerful interests and put in place a tax on inherited wealth. This generation needs to rekindle that spirit, not only in defending our estate tax from continued assault, but in establishing other ways to tax extreme wealth. The well-being of this and future generations of Oregonians demands it.

Picture of Daniel Hauser

Daniel Hauser

Daniel Hauser is the Deputy Director of the Oregon Center for Public Policy
Picture of Juan Carlos Ordóñez

Juan Carlos Ordóñez

Juan Carlos Ordóñez is the Communications Director of the Oregon Center for Public Policy

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