Statehouse Democrats say Oregon stands to lose an unacceptable amount of money because of tax cuts contained within H.R. 1, the so-called One Big Beautiful Bill Act, passed by Congress last year.
Now the party has offered up its idea for taking some of that money back.
A proposal unveiled Monday afternoon would disconnect the state’s tax code from three federal cuts passed by Congress.
If approved, the bill’s authors say it would recapture $342 million that Oregon currently stands to lose because of H.R. 1.
Not all of that money would remain in state hands.
The proposal, crafted by state Sen. Anthony Broadman, D-Bend, and state Rep. Nancy Nathanson, D-Eugene, would expand an existing tax credit to low-income Oregonians and create a new credit for businesses that add new jobs in the state.
The combined impact for lawmakers trying to close a budget hole: $291 million more in general fund money to spend as they please.
“We’re working to balance the budget and benefit Oregonians,” Nathanson told reporters Monday, hours before the proposal was introduced as an amendment to Senate Bill 1507.
The disconnect proposal is likely to be one of the more contentious topics lawmakers take up this year during the 35-day session that kicked off Monday.
Already, the notion of severing the state’s tax code from federal changes has spurred a pressure campaign from labor groups against moderate Democrats who might be skeptical.
Republicans and business groups are gearing up to oppose the changes, which they say amount to a tax hike at a time when Oregonians are feeling the pinch of high prices.
Proponents insist that it’s not a tax hike, but rather reverting certain pieces of the state’s tax code to their previous state prior to H.R. 1.
“Those were not our choices,” Nathanson said. “We were just handed those decisions.”
Federal tax changes impact Oregon’s revenue because the state uses a person’s federal taxable income as a starting point for what residents owe in state taxes. When taxable income decreases due to tax cuts passed by Congress, the amount the state levies under its own tax code also automatically decreases.
During the current two-year budget, Oregon’s revenue analysts said last year the state would forego $888 million because of H.R. 1.
Nathanson and Broadman are proposing that Oregon eliminate three of those changes from consideration when it comes to state taxes: a tax deduction for interest paid on car loans, an exemption for profit made when selling “qualified small business stock,” and a rule that allows businesses to more immediately claim tax deductions for machinery and equipment they purchase.
Some of the better-known tax changes in H.R 1 – including an exemption to taxes on tips and overtime pay – would not be touched.
Oregon is just one of the states grappling with how to rejigger its relationship with the federal tax code in light of the massive federal bill. Nathanson and Broadman suggested Oregon would be in league with many others in opting not to honor some federal cuts.
Broadman and Nathanson are also proposing to spend some of the money they hope to reclaim by disconnecting from the federal tax code.
First, they want to increase how much lower-income Oregon taxpayers can receive in their state Earned Income Tax Credit, or EITC.
Currently, when taxpayers qualify for a federal EITC, they can get a state credit worth up to between 9% and 12% of the federal credit. B
Broadman and Nathanson want to increase the state’s tax credit to between 14% and 17% of the federal benefit.
Such a tweak would cost the state $26 million, Democrats said. Roughly 213,000 Oregon tax filers claimed an EITC in 2023, according to numbers provided by the Legislature.
The lawmakers are also proposing the creation of a $1,000 tax credit for each job employers create in the state. Nathanson and Broadman said the new credit is expected to cost the state $25 million during the current two-year budget cycle.
“At the end of the day, this proposal will put more money in Oregonians’ pockets,” Broadman said. “It’ll save taxes for working Oregonians. It will save taxes for businesses that hire Oregonians. Those coupled together, we feel like, meet the moment for affordability.”
Nathanson and Broadman both said they were optimistic that business interests would view the proposal as a reasonable step in light of ongoing state budget worries. Going into the session, lawmakers are operating under the theory that they would need to find around $750 million to balance the state’s general fund budget, and another roughly $300 million to shore up the Oregon Department of Transportation.
Gov. Tina Kotek and other top Democrats have made boosting the state’s business climate a clear goal, as economic headwinds raise concerns about Oregon’s future.
“We believe that this plan keeps us competitive and maybe even makes us a little more competitive,” said Nathanson. “We’re going to be attractive for growing jobs in Oregon with this new jobs tax credit.”
The state’s financial picture will become clearer on Wednesday, when economists reveal the latest quarterly revenue forecast. At the same meeting, SB 1507 will get its first public hearing.
Republicans are almost certain to oppose the disconnect proposal. The party has signaled it views breaking from H.R. 1 as a move to hike taxes that would be met with anger by many Oregonians.
“If the majority party focuses again on just pulling more money out of Oregonians’ pockets and continuing to grow the size of government with new programs that are extraordinarily expensive,” Senate Minority Leader Bruce Starr, R-Dundee, said last week, “we will do everything in our power to try to slow it down and expose it.”
Despite its potential tax impacts, Democrats say disconnecting from the federal tax code as Nathanson and Broadman propose would require a simple majority vote – not the three-fifths supermajority vote necessary for tax hikes.
Democrats have supermajorities in both the House and Senate, but it’s not clear the party will move in lock-step on the tax disconnect bill.
This story comes to you from the Northwest News Network, a collaboration between public media organizations in Oregon and Washington.
