The 15-member panel of business and labor leaders proposed four modest tax code changes, replacing the Climate Protection Program, and some less controversial reforms.
By Nigel Jaquiss
Oregon Journalism Project
Gov. Tina Kotek’s Prosperity Council today issued a clear challenge to the governor: Make a package of relatively small changes to the state’s tax code and replace the controversial Climate Protection Program—or risk the state’s further slide.
“Without meaningful change, Oregon risks falling into a cycle of economic stagnation, declining public confidence, eroding services and fewer pathways to upward mobility,” the panel wrote in its final report.
— Tina Kotek for Governor photo
The report completes a process Kotek launched in December. As her re-election campaign loomed, the governor expressed new interest in the state’s economy and appointed the Prosperity Council. She hired Tim Knopp, a former Republican Senate minority leader, to be her liaison to the council and named Renee James, a former president of Intel and founder and CEO of Ampere Computing, and Curtis Robinhold, executive director of the Port of Portland, to chair the effort.
The council’s report defined the state’s economic ills with a few grim stats: Oregon ranks 49th in the nation in private sector job growth; workers’ paychecks are growing at half the national rate; and unemployment in Oregon is 21% higher than the national average.
In response, the group made 10 immediate recommendations for “Oregon’s Long Term Prosperity.”
Most of the ideas, developed after 66 listening sessions across the state, more than 1,000 survey responses, and five gatherings of the panel, are neither surprising nor polarizing.
The low-hanging fruit includes overhauling the state’s economic development agency, Business Oregon; strengthening higher education and workforce development; reducing duplication and excessive regulation; and increasing the supply of and funding for industrial land.
James and Robinhold’s group also concluded Kotek and the Legislature need to send visible signals that Oregon is open for business, and recommended four relatively modest tax changes for the 2027 legislative session—and a much more comprehensive look at Oregon’s tax code during the 2029 session.
Here are the short-term suggestions:
- Trim the Corporate Activity Tax: Raising the threshold for who pays the tax would make a big difference for small businesses, while costing the state little. Last year, according to the Oregon Department of Revenue, 42% of the companies that filed a CAT return generated less than $2 million in revenue. Those companies paid just $13 million in CAT taxes—about 1.1% of the total raised.
- Estate tax: Oregon has the most punitive estate tax of the 13 states that levy such taxes. The tax kicks in at $1 million of an estate’s value, compared to $3 million in Washington. California, Idaho and Nevada do not have estate taxes. Critics say high net worth Oregonians are leaving the state to avoid the tax. The Prosperity Council wants to increase the exemption from $1 million to at least be competitive with Washington. That would dramatically reduce the number of Oregonians paying the tax: In 2023, 4 in 5 estate tax returns filed were for estates of less than $2.5 million. Those estates paid $71 million in taxes—18% of the total amount of estate taxes raised.
- Qualified small business stock deduction: The 2025 Trump tax bill included an expansion of an existing tax break for people who sell equity stakes in small companies. In the February session, Oregon lawmakers “disconnected” from that tax break. The Legislative Revenue Office said the break would cost the state about $28 million a year. (An earlier draft of the Prosperity Council report included a proposal to restore another part of the Trump tax bill popular with businesses—accelerated depreciation, which allows faster write-offs of new capital investments. That suggestion did not make the final cut.) On this issue, Kotek already has a position: She expressed interest in revisiting the deduction when she signed the disconnect bill earlier this year.
- Modernized research and development tax credits: There is less analysis on the cost of this incentive, but ECOnorthwest, which staffed the Prosperity Council, said a comparable program would be Oregon’s semiconductor tax credit, which costs about $40 million a year. Many states, including California, use R&D credits to incentivize startups and commercialize university research.
The four proposed changes would cost around $150 million a year, less than 1% of the state’s general fund budget.
In an interview, James and Robinhold acknowledged that the two labor representatives on the council, Robert Camarillo, executive secretary of the Oregon State Building and Construction Trades Council, and Alice Dale, a retired Service Employees International Union official, disagreed with the proposed tax cuts. A “dissenting perspective” in the report said the two “expressed concerns about the necessity of broader business incentives and their long-term impact to the state.”
Organized labor is Kotek’s strongest source of support, so she now faces the choice of trying to implement the council’s agenda or acceding to the wishes of her base.
Public employee unions and their progressive allies have already publicly announced their opposition to any tax reductions, warning Kotek last month after OJP published a draft of the Prosperity Council recommendations that “this council has set out to deliver prosperity for corporations and the wealthy, not working families.”
Finally, in what may be the panel’s boldest recommendation, the report to the governor recommends that the state’s Climate Protection Program be replaced by some version of emissions reductions programs in California or Washington.
As OJP reported, that program, enacted as an executive order by former Gov. Kate Brown, includes emission reduction goals similar to those of programs in California and Washington but places a higher price on carbon than those states and isolates Oregon from other states’ market-based programs.
Natural gas users (and NW Natural) say the state’s program places Oregon companies at a disadvantage to peers in other states. They are currently suing in the Oregon Court of Appeals to halt the program. Customer groups and lawmakers in both parties also object to the way the money the CPP will raise—by some estimates billions of dollars in coming decades—will be spent. It will go to one or more nonprofits that will distribute the money to other nonprofits for emissions reduction, rather than going to state agencies.
“We heard around the state that CPP is not the way you should do this [emissions reduction],” Robinhold said.
Environmental groups, another important part of Kotek’s base, fought hard for climate regulation and, like GOP lawmakers who walked out of the Capitol to block cap and trade legislation, will be reluctant to scrap the current program.
At a press event on the afternoon of June 25, Kotek responded positively to most of the council’s recommendations but equivocated whether she’d push for the four short-term tax cuts.
She said she would need to examine how various proposals affect the status quo and what the fiscal impact of each would be. The goal, the governor said, would be revenue neutrality and that although she wants to bolster Oregon’s economy, she doesn’t want to reduce current programs.
“The question will be ‘Can we do this in a way that allows us to continue to pay for services?’” Kotek said.
The governor sounded more enthusiastic about replacing the Climate Protection Program. “When we look at Washington and California, they both have market-based programs—we need to align with them.”
Republican gubernatorial nominee Christine Drazan reviewed the Prosperity Council’s report and responded with cautious optimism.
“We all know this council was an election-year gimmick, but these recommendations are a meaningful start and deserve strong bipartisan support,” Drazan said. “Let’s build on the ideas that create jobs, fix our economy and make Oregon more affordable. That includes bold tax cuts for families and businesses. I’m ready to get to work.”
Drazan’s response suggests the Prosperity Council hit a sweet spot in the political middle. In other words, although Kotek established the council as an independent body, its recommendations come at a time when an unpopular governor is seeking re-election and therefore cannot be too ambitious.
Prosperity Council member Jordan Schnitzer, a Kotek supporter but perhaps the most independent member of the panel, told his colleagues in a June 24 memo the recommendations didn’t go far enough.
“Even if the governor and legislators pursued all of these recommendations immediately, business owners would not have a clear reason to choose to locate or expand in Oregon over other Western states with concrete advantages like lower tax rates and common sense regulations,” Schnitzer wrote. (At the June 25 gathering, he sounded a more supportive note, effusively thanking Kotek for forming the Prosperity Council and pledging support in selling the council’s proposals to the Legislature.)
James, who said in an ideal world the panel would have also looked at ways to make government more efficient, agrees with Schnitzer’s desire for boldness: “A super-important part of the entire recommendation was, let’s get some things that can be immediate, actionable and helpful to a broad swath of Oregonians.”
James and Robinhold said the bottom line is that Oregon’s economy is increasingly uncompetitive with other states—and particularly neighboring ones.
“What we’re seeing is the evidence that we’ve been sitting on our laurels, and we’re losing companies and we’re losing jobs,” Robinhold said. “It’s past yellow flags going up. These are red flags showing that we’ve got real problems.”
James, who sold Ampere Computing last year for $6.5 billion to Softbank, said she was struck by how keen Oregon companies are to remain and even expand in Oregon but how difficult policymakers and state bureaucrats have made it for many to do so.
“There’s no urgency or organization,” James said. “Everyone’s not going in the same direction.”