Lousy Leverage: Is Oregon about to have a fight over a wealth tax?

On October 8, a coalition of public employee unions and progressive advocacy groups filed Initiative Petition 37 with the Oregon Secretary of State. The initiative, the earliest step toward qualifying a measure for voters, proposes a new financial assets tax (FAT) — in other words, a wealth tax — on people whose net worth exceeds $30 million.

If the petition qualifies for the ballot and voters approve the measure, it would levy an annual tax of 1 to 1.2 percent on qualifying assets, including real property, cash, bonds, and other investments. Proponents allege the initiative would raise $1.5 billion every two years and dedicate some of the proceeds to a new refundable 30 percent tax credit for individuals with income of $50,000 or less and households at $100,000 or less. The estimate deserves scrutiny. The last time these groups placed a major tax on the ballot, Measure 97 from 2016, their revenue claim ran $2 billion higher than the Legislative Revenue Office and records later showed the campaign spent months pressuring their economic consultants to downplay the measure’s economic risks.

Our friends at Greenberg Traurig recently published a helpful rundown of the FAT mechanics, and rather than reprint it, I encourage you to read it and subscribe to their updates.

More interesting than the policy, however, are the politics creeping behind the wealth tax initiative. In announcing their campaign, a spokesperson told the Oregon Capitol Chronicle its purpose was to “put pressure on lawmakers ahead of the 2027 long legislative session.” That is an unusually candid admission. Campaigns that use the initiative process as a bargaining chip generally understand the chip is only valuable if everyone believes the threat is real.

So, is Oregon about to have a fight over a wealth tax? At first glance, it seems likely; however, a closer look at the tax landscape heading into the next election makes it feel like a less credible threat.

Although nothing is set in stone for the 2028 ballot, the cycle is already ramping up for a heavy dose of tax debates. During next year’s legislative session, proposals are already in the works to increase transportation taxes to backfill a budget deficit, raise taxes for statewide universal preschool, and increase taxes by an astronomical $61 billion to create a state-run universal healthcare insurance plan. If lawmakers cannot find the supermajority support to enact these tax increases into law or, if political leadership fears another referendum campaign, they could proactively refer one or more taxes to voters.

Oregon Metro, the Portland area’s regional government, is also expected to refer a measure to voters asking them to renew controversial income taxes on individuals and businesses to support homeless services. Those taxes are currently set to sunset in 2030, making a 2028 ballot appearance nearly certain. (In theory, Metro could wait until the 2030 election cycle; however, that would pose substantial administrative and political challenges.) Unlike other local funding measures, where tax renewals are generally uncontroversial, recent polling suggests area voters, particularly younger voters, are growing frustrated with these taxes.

While only Portland area voters will decide the fate of the regional taxes, their sentiment fundamentally shapes the statewide landscape. Supporters of new or higher taxes rely on Portland area voters, especially in Multnomah County, to offset tax opposition elsewhere in the state. By many measures, those Portland voters now live in the country's highest-taxed metropolitan area.

If the voters every tax campaign relies on are being asked to sustain Portland’s already high tax burden, will they also support other controversial taxes?

Campaigns tend to live in a vacuum. That is not a criticism so much as a description of the job: operatives and true believers spend years convincing themselves their measure is the most important question voters will face. Without that mentality, it is hard to recruit others to donate money or time to the campaign. Meanwhile, voters’ tolerance for new taxes is finite, and they have said so with increasing clarity.

Portland area voters’ appetite for nontraditional taxes — that is, taxes besides property tax levies — has largely soured in recent years. Since 2020, Portland and Multnomah County voters have loudly rejected novel taxes. Many of these defeats were not close calls that a better campaign could have flipped, but rather a clear signal that voters said enough is enough.

Multnomah County share shown for state and county measures; 2018 is City of Portland; Metro measures show the Multnomah County portion of the three-county district. Sources: Oregon Secretary of State and Multnomah County Elections official abstracts.

If Metro seeks to renew its income taxes before they expire, it will be the clearest test of Portland’s appetite for new or continued taxes. However, if advocates crowd out the ballot with other taxes, especially high-profile or politically incendiary ones, they risk not only losing their own campaigns but inflicting collateral damage throughout the ballot.

Introducing ballot measures as a threat is a legitimate political tool. In the past, interest groups have launched initiative campaigns to compel the other side to negotiate. We have seen this work on taxes, agricultural practices, campaign finance reform, and plenty of other topics. For instance, in 2020, conservation groups filed initiatives to restrict forest practices in the timber industry. Soon after, the timber industry introduced its own competing measures. Instead of fighting it out on the ballot, the governor’s office negotiated with the groups to find a legislative compromise more palatable to both sides.

An initiative as a bargaining chip only works if the threat is credible enough for both sides to prefer a deal over a fight. Admitting an initiative was introduced to “apply pressure” on the legislature to raise other taxes does the opposite — it’s like announcing to the poker table that you are bluffing. The politics of the likely 2028 ballot measures also make the bluff less convincing. If tax-friendly groups overplay their hand and pursue too many taxes, it sets the stage for a tax revolt down the ballot. The groups behind the wealth tax are closely aligned with the groups that would champion the Metro income tax renewal. Are they willing to accept that risk?

If we set aside the politics of competing tax increases, there is also the practical reality of the wealth tax these groups are throwing into the mix. Oregon’s business climate cannot absorb another tax experiment. The state has very few publicly traded corporations and the pattern for ones founded here is becoming familiar: they grow and then leave. While the financial assets tax does not directly target large or publicly traded corporations, it reaches their founders and shareholders. That is, the people who decide where to locate a corporate headquarters would have a clear incentive to look elsewhere.

California is testing a similar concept in this year’s election. Proposition 40, which voters will decide next week, seeks to impose a one-time five percent tax on billionaires’ net worth. In that race, capital flight is already the central issue of the campaign. Earlier this month, economists at Stanford University and the Hoover Institute released an estimate suggesting wealthy people leaving California to avoid the tax could reduce the proposed wealth tax collections from $100 billion to $30 billion, and the state could lose $1 billion to $3.5 billion a year in sales, income, and other taxes.

Oregon’s initiative is a fundamentally different tax than California’s billionaire levy. In some ways, it is unequivocally harsher because it applies annually, creating a stronger incentive for affected taxpayers to move to avoid it. We are already seeing individuals and households move to Clark County, Washington, to avoid paying Oregon’s high state and local taxes. The incentive only increases with another tax, and even with Washington’s new income tax on high earners, they would pay less.

To be clear, none of this downplays the problems of the Oregon wealth tax proposal. Oregon’s reliance on the personal income tax to fund state programs means the state has more to lose than California if the people it targets decide to leave for greener pastures. The state has also experimented in recent years with a gross receipts tax for school funding, payroll taxes for medical leave, an administrative carbon emissions regime, and more. However, a dangerous proposal is not the same as a credible threat, and this campaign seems to have gone out of its way to tell us it would rather be a monster under the bed than one at the door.