Oregon May Not Actually Face Budget Hole From Federal Tax Changes

As it turns out, Oregon doesn't appear to face an immediate budget crunch from the new federal tax law.

That's the conclusion of a new state economic forecast released Friday showing that the state is picking up enough additional revenue to stay in the black for the rest of the 2017-19 budget cycle.

That new forecast led Gov. Kate Brown to warn her fellow Democrats in the Legislature to scale back a bill that would curb tax breaks for smaller companies.

"I believe we must protect small businesses, the engine of our economic growth," Brown said in a statement.

Related: Federal Tax Cut Leaves Oregon With Its Own Budget Hole

Legislative leaders had previously said the state faced a potential budget hole of more than $200 million, largely because of that big federal tax cut.

Oregon automatically adopts many provisions of the federal tax code if the Legislature doesn't act. And the new federal law provides some taxes that would give new reductions for Oregon businesses.

One is a break for corporations that keep some of their profits overseas. A bill that would curb that break unanimously passed the Senate this week. It did not appear to draw any business opposition.

More controversial is the expansion of a break for businesses known as "pass-through entities" because their owners pay personal income taxes on their profits.

Many legislative Democrats had complained the state had given pass-through businesses too big of a break even before Congress expanded it. They have a bill in the Senate that would allow a break only on the first $250,000 in profits.

Brown regards that cap as too tight. And Republicans are making it clear they are skeptical about the need for any legislation at all on business taxes.

"This revenue forecast shows that Oregon's economy continues to prosper," Senate Minority Leader Jackie Winters, R-Salem, said in a statement, "eliminating the need for any new revenue package during this 35-day short session."

Senate Majority Leader Ginny Burdick, D-Portland, countered that she believes the federal tax changes will hurt the Oregon budget in future years.

"We should chart our own course by detaching from the federal tax code in key areas," Burdick said. "That will protect the middle class and low-income Oregonians."

State Economist Mark McMullen said the latest forecast shows tax collections growing by a net of about $100 million. He cautioned, though, that much of it comes from one-time savings by state agencies that didn't spend all of the money budgeted for them.

He said the state is now "pretty much right where we were at the end" of the 2017 session that finalized the current two-year budget.

McMullen cautioned that the state still faces a major budget gap in the next budget cycle.