I complained about the whole QSBS stuff in my own way. And I provided a very subjective perspective to the Oregon Prosperity Council. But someone finally did the math on SB 1507, the Oregon bill that disentangles Qualified Small Business Stock tax shelters from the federal tax law and establishes a 9.9% tax on QSBS returns. And — shocker — the numbers are worse than I thought.
When I wrote about Oregon’s QSBS problem a few weeks ago, the thing that kept nagging at me was the Legislative Revenue Office’s projections. They estimated $344 million in new revenue over 10 years. But that number assumed nobody changes their behavior. No founders move. No investors leave. No startups decide to form somewhere else. Zero percent capital flight.
That’s not a projection. That’s an ill informed and exceptionally naive wish.
In contrast of that naivete, Chris Schuermyer — a born-and-raised Oregonian, for what it’s worth — built a fiscal impact model for SB 1507 using Monte Carlo simulation grounded in published academic research and government data.
And the results…? Well, they’re not pretty.
The headline number? A projected net loss of $650.9 million over 10 years. That’s the $344 million in projected revenue minus the $995 million in modeled losses from three channels:
- Founder relocations (45.4% of losses): Founders change residency to claim QSBS in other states.
- Investor exits (34.0%): Angel investors and VCs move capital to zero-income-tax states.
- Lost startups (15.6%): Without QSBS, fewer companies get funded and founded here in the first place.
Here’s the part that should make Salem sit up: The model shows that the state breaks even if only 35% of the predicted behavioral response actually happens. That’s roughly 48 founders moving across the river, 73 startups never forming, and 501 investors leaving — over 10 years.
Anything beyond that is a net loss for Oregon.
I don’t know about you, but those breakeven numbers seem almost laughably modest. We’ve been watching founders move away to protect themselves from liquidity event taxes for decades. This just gives them one more very good reason to move out of state — or to never start here to begin with.
Don’t like the decade long doom and gloom…? You’re welcome to try different timeframes and impacts to your heart’s desire. I’ve tried a whole bunch of them and none of them look good.
For the full model, sensitivity analysis, and research citations, visit Yex Labs SB 1507 Fiscal Impact Model.
(h/t Josh Carter)
