Oregon Democrats Consider Decoupling State Tax Code from Federal GOP Cuts

What's Happening?

Oregon Democrats are evaluating options to prevent the state's tax code from automatically aligning with recent federal tax cuts enacted by the GOP. The state's 'rolling reconnect' policy, in place since 1997, automatically incorporates federal tax changes into state tax policy. If no action is taken, Oregon could lose approximately $888 million in revenue over the next two years. The potential revenue loss stems from federal changes that eliminate income taxes on overtime pay and tips and allow full deductions for depreciating assets. State lawmakers are considering a special session to address the issue before the end of the year, as waiting until the regular legislative session in February could result in significant revenue losses for 2025.

Why It's Important?

The decision to decouple from federal tax changes is critical for Oregon's fiscal health, as the state relies on income tax revenue to fund public services. The potential loss of $888 million could impact essential services, including education, healthcare, and infrastructure. The debate also reflects broader political dynamics, with Democrats seeking to maintain state revenue and Republicans advocating for tax cuts that benefit individuals and businesses. The outcome of this decision could set a precedent for how states respond to federal tax policy changes and balance economic growth with public service funding.

What's Next?

Oregon lawmakers will discuss the issue during Legislative Days from September 29 to October 1. They may call a special session to address the tax code alignment before the year's end. The decision will involve weighing the benefits of federal tax cuts against the potential loss of state revenue. Governor Tina Kotek is analyzing the recent revenue forecast and will discuss next steps with legislative leaders. The outcome of these discussions will determine whether Oregon will decouple from the federal tax changes and how it will address the potential revenue shortfall.