Oregon is expected to lose nearly $1 billion in revenue in the next two years due to the tax cuts in President Donald Trump's signature legislation that passed Congress last month, according to a state analysis published in July.
The preliminary analysis, conducted by the nonpartisan Legislative Revenue Office, determined that Oregon could lose out on roughly $972 million in the two-year budget period that began in July based on various federal tax changes that will flow down to the state.
The federal bill includes more than 100 provisions that will impact Oregon's tax system, according to the report. State analysts examined some of the largest cuts in the bill and estimated that Oregon will forgo about $451 million in personal income tax revenue and $581 million in corporate taxes over the next two years.
That's how much Oregonians, and businesses operating here, will save on their tax bills. But it also means lawmakers will have fewer resources than they anticipated to draw from in the state's general fund.
In June, lawmakers passed a two-year budget projecting $37.3 billion in general fund spending. So the state is looking at roughly a 2.6% drop in anticipated revenue, which could mean difficult choices in the months ahead as Oregon scrambles for ways to boost school funding and shore up its transportation network.
"The Legislature basically has three buckets of responses," said Chris Allanach, the state's Legislative Revenue Officer. "One is budget cuts, two is (securing) additional revenue and three would be accessing reserve funds."
As of June, Oregon had about $2.9 billion across its Rainy Day Fund and the Education Stability Fund, the state's two largest reserve funds. But tapping that funding pool would require a three-fifths majority vote in the Legislature and consensus among top lawmakers on where the money should be spent.
Oregon is particularly vulnerable to federal tax cuts because its income tax system is closely linked to the federal system. The state uses federal taxable income, which accounts for federal exemptions and deductions, to determine the starting point for the amount businesses or individuals owe.
Additionally, Oregon has little recourse to avoid the automatic adoption of the tax changes because the state has "rolling conformity" for personal and corporate taxes, meaning most changes to the federal tax code take effect without requiring approval from state lawmakers.
The tax changes in the federal bill are likely to benefit taxpayers in every income group, but they are expected to disproportionately favor wealthy Americans, according to a report from the Annenberg Public Policy Center at the University of Pennsylvania.
Oregon will feel the effects of many of those modifications in its future revenue. For example, a new deduction on overtime pay could mean that Oregon will see a $223 million decline in potential revenue over the next two years and $159 million less between 2027 and 2029, according to the legislative report.
State economists will provide an updated analysis to lawmakers on Aug. 27 when they present their quarterly revenue forecast. Allanach said the upcoming forecast will be a snapshot, emphasizing that the full impacts of Trump's bill will not be known for months or years.
The upcoming revenue forecast likely won't bring much good news for lawmakers looking to boost state spending or hoping to avoid cuts to services, Allanach said.
"It certainly looks like (projected revenue) is going to be less," he said. "Just simply looking at the federal legislation, that's going to be a significant downward revision."
Worsening the revenue outlook, state economists earlier this year said that Trump's policy changes and actions on tariffs have contributed to an expected decline in Oregon's projected revenue. They also reported a $500 million decline in projected tax revenue through the current budget cycle.
To lessen the immediate impacts of the federal tax changes, Oregon lawmakers could "decouple" the state from federal tax code for certain provisions, which would give them more say over when or how those modifications will affect the state's revenue, economists say.
Lawmakers did so in response to similar federal tax changes during Trump's first term, according to the Tax Foundation, a tax policy think tank. But it's unclear if they will do so again. Earlier this year, a Democrat-backed bill that would have temporarily suspended Oregon's automatic adoption of federal tax changes died in the Senate.