Oregon state economists delivered some good and bad news to lawmakers on Wednesday. The good news: the state’s forecasted budget deficit has shrunk from more than $370 million to $63 million, mostly due to the state receiving higher than anticipated corporate tax payments.
The less positive news: that infusion of corporate taxes is a temporary, short-term solution to Oregon’s long-term budget woes and does not indicate any strength or growth in the state’s economy.
The revised revenue forecast means that lawmakers have some more breathing room, for now. In committee meetings this week, Lawmakers have been hearing from state agency leaders about the cuts they would have to make in order to close the anticipated shortfall.
In August, state economists predicted a nearly $400 million deficit in the current biennium after a legislative report calculated that President Donald Trump’s signature tax-cutting bill would cost the state nearly $900 million in tax revenue. That’s because Oregon generally copies federal tax law automatically, so any new federal tax cuts result in copycat reductions in state taxes.
For months, lawmakers have been preparing to make steep cuts to agency budgets while also discussing the possibility of dipping into state reserves or disconnecting Oregon’s tax code from some of the tax cuts in the federal bill, to preserve some of the state’s revenue that will otherwise be lost.
It was not immediately clear as of Wednesday morning how lawmakers would respond to the updated forecast. Top Democrats have pointed out that the federal tax cuts are expected to reduce Oregon’s tax revenue by much larger amounts in future budget periods. That gives them some incentive to selectively disconnect the state’s tax code from some federal tax cuts.
But Republicans and business groups have previously pushed back on efforts to disconnect from federal tax cuts because they save Oregonians, and businesses in the state, money on their tax bills.
“The latest numbers make one thing clear: there is absolutely no reason for the majority party to tax workers’ overtime or tips, or to enact more policies that would drive more Oregon businesses to other states as they had planned,” Senate Republican Leader Bruce Starr of Dundee said in a statement Wednesday.
State Economist Carl Riccadonna said the state’s outlook on the national and state economy has somewhat rebounded from earlier forecasts this year. He said the economic toll of tariffs has not been as harsh as experts initially expected, while the tax cuts from the federal bill have already provided some economic stimulation. He also said the chances of a recession in the next year have decreased.
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