Oregon Prosperity Council Proposes Flat Income Tax, End to Corporate Activity Tax

SALEM, Ore. — A special council appointed by Governor Tina Kotek unveiled a sweeping set of economic recommendations on June 25, proposing to fundamentally overhaul Oregon's tax system by replacing the progressive income tax with a single flat rate, eliminating the state’s controversial corporate activity tax, and establishing a new carbon emissions program.

The Oregon Prosperity Council, a 13-member group of business, labor, and community leaders, presented its final report after months of deliberation aimed at boosting the state's economic competitiveness. The proposals, if enacted, would represent the most significant changes to Oregon's fiscal and environmental landscape in decades, directly impacting nearly every business and resident in the state.

Central to the council's recommendations is a dramatic tax restructuring. The report calls for replacing the current multi-bracketed personal income tax, which tops out at 9.9%, with a flat tax of 3.95%. For businesses, the council recommends the complete elimination of the Corporate Activity Tax (CAT), a 0.57% tax on business receipts over $1 million that has been a point of contention since its implementation in 2020. The state’s estate tax would also be repealed under the plan.

While replacing a complex, progressive system with a single flat tax appears to simplify things, the devil is always in the details. In our experience, major structural changes like this create a host of secondary effects for business owners, particularly for pass-through entities where business and personal income are intertwined. Understanding how a flat tax interacts with other deductions and credits is critical before celebrating the headline rate.

To offset the revenue loss from these cuts, the council proposed a significant increase in property taxes. The plan suggests raising the constitutional limit on property tax rates from $10 per $1,000 of real market value to $15 per $1,000. This shift would fundamentally alter the state's revenue base, moving it away from taxes on income and business activity and towards taxes on real estate.

The council, co-chaired by former state schools superintendent Duncan Wyse and Lori Mix, CEO of the Oregon Bankers Association, argued that the state's current tax structure hinders its ability to attract and retain businesses. The report stated that Oregon’s high personal income tax rates make it difficult to recruit talent, while the CAT creates a complex compliance burden, especially for small and mid-sized companies.

The proposal to eliminate the Corporate Activity Tax while simultaneously raising the property tax limit is a classic tax policy trade-off that business owners must analyze carefully. It shifts the burden from business activity and revenue to real estate ownership. For a manufacturer with a large physical plant, this could result in a higher overall tax bill, even without the CAT. This is precisely the kind of scenario where proactive financial modeling is essential.

Alongside the tax overhaul, the report recommends the creation of a new cap-and-invest program to regulate greenhouse gas emissions. This proposal comes after a similar legislative effort failed dramatically in 2020. The council suggests the new program could generate revenue that might be used to mitigate the impact of other policy changes or to invest in green initiatives.

Governor Kotek, who formed the council last year to develop a long-term economic strategy, received the report and thanked the members for their work but did not immediately endorse the specific proposals. In a statement, she acknowledged the need for bold action but noted the recommendations would require extensive public discussion and legislative debate. The council itself recognized the political difficulty of its proposals, describing them in the report as a “comprehensive package” that should be considered as a whole rather than piecemeal.

As these proposals enter the political arena, Oregon businesses should not remain passive. The potential changes are significant enough to warrant a detailed review of your current tax strategy. Navigating these proposed shifts requires expert guidance, and the team at C&S Finance Group LLC at csfinancegroup.com specializes in tax preparation and compliance to help businesses prepare for such legislative changes.

The recommendations now face a challenging path forward. They will be scrutinized by lawmakers, industry groups, and public advocates ahead of the 2025 legislative session. Business owners and investors will be watching closely to see which, if any, of these transformative proposals gain the political traction necessary to become law.