Oregon’s Tax Experiment: Prosperity Amidst Higher Levies Challenges Economic Orthodoxy

A decade and a half after Oregon voters approved significant income and corporate tax increases, an analysis suggests the state’s economy not only withstood the fiscal shift but flourished, experiencing robust job growth and rising incomes. This outcome directly challenges decades of economic predictions from conservative economists who warned that such measures would irreparably damage the state’s economic prospects.

The analysis, authored by Joe Cortright of Impresa and a senior non-resident fellow at the Brookings Institution, revisits the period around 2010. Oregon, like much of the nation, was grappling with the fallout from the Global Financial Crisis. Job growth was lagging, unemployment was high, and the state budget faced a significant deficit. In response, legislators proposed and voters approved Measures 66 and 67, which increased income taxes for high-earning households and bolstered the corporate minimum tax, aiming to stave off cuts to essential public services.

At the time, economists like Eric Fruits, writing for the Cascade Policy Institute, predicted dire consequences. They argued that the proposed tax hikes would “perpetually impair the rate of job growth in Oregon.” These forecasts, however, have proven to be spectacularly wrong, according to Cortright’s contemporary commentary and subsequent economic data.

Economic Performance Contrasts with Predictions

Over the seven years following the passage of Measures 66 and 67, Oregon’s employment landscape transformed. Instead of declining, the state added over 300,000 jobs, growing its workforce from 1.595 million in January 2010 to 1.908 million by January 2018. This rate of job creation placed Oregon among the top ten states nationally for percentage growth during that period, significantly outperforming the national average.

Furthermore, Oregon’s per capita income saw a dramatic rise. From 2011 through 2025, the state recorded the fifth-fastest rate of per capita income growth in the United States. This economic vitality occurred despite, and perhaps in part because of, the state’s decision to maintain and even increase public investment through higher tax revenues.

Challenging Economic Dogma

Cortright’s analysis directly confronts the long-standing argument that lower taxes are a prerequisite for economic success. He argues that the academic literature on state-level economic growth indicates that while taxes can have a minor negative effect, this is often offset or surpassed by the positive impacts of increased public spending on critical areas like education and infrastructure.

The commentary debunks specific claims made by economists Randy Pozdena, Eric Fruits, and Bill Conerly, who were prominent in opposing the 2010 tax measures.

Pozdena’s assertion that higher corporate taxes would reduce job growth was based on an international study that included less developed countries. Cortright notes that such broad comparisons are questionable and that Oregon’s corporate income and gross receipts taxes, which are based on in-state sales, are not comparable to the scenarios in the study. Experts at the Brookings Institution reviewed Pozdena’s work and concluded that cross-country studies of this nature do not apply to how apportioned taxes affect economic growth within a developed nation like the US.

Conerly’s argument that higher income taxes lead to lower job growth was based on a correlation between tax levels and employment growth across US states. Cortright counters that this interpretation reverses the causality. He posits that states often raise taxes during economic downturns to balance budgets, and subsequently cut taxes when times are good. This pattern, he argues, aligns with Oregon’s historical fiscal behaviour, including the imposition of an income tax surcharge in the early 1980s during a revenue shortfall.

Fruits and Pozdena’s claim that high income taxes cause wealthy households to leave the state was also challenged. The study they cited, which examined California, suggested that high-income households are less mobile, and that lower-income households are more likely to relocate to low-tax states.

The Power of Public Investment

Beyond challenging specific economic theories, the analysis underscores the importance of public services. Cortright contends that the alternative to raising taxes—deep cuts to public services and spending—would have been a far more detrimental path for Oregon’s economy. Investments in education, infrastructure, and social services can foster a more stable and productive economic environment, potentially outweighing the direct costs of taxation.

The commentary originally appeared on Blue Oregon on January 21, 2010, reflecting an early assessment of the potential implications of the tax increases. The subsequent economic data from Oregon provides a real-world experiment that appears to validate the argument for the continued importance of robust public investment, even in the face of fiscal conservatism.

Key facts

This case study from Oregon offers a compelling counter-narrative to the prevailing economic wisdom that prioritises tax reduction above all else. It suggests that strategic public investment, funded by progressive taxation, can be a powerful engine for economic growth and improved living standards. For urban planners and policymakers, it highlights the complex interplay between fiscal policy, public services, and economic outcomes, urging a more nuanced approach to understanding what truly drives prosperity in a region.

Source: City Observatory – Wrong before, wrong again: Taxes haven’t damaged Oregon’s prosperity – https://cityobservatory.org/wrong-before-wrong-again-taxes-havent-damaged-oregon-s-prosperity/