Some Oregonians could actually face a state income tax increase if Congress passes the Republican tax cut plan that was formally unveiled Thursday.
“Potentially, yes, it could be an increase for the state,” said Paul Warner, who runs the Legislative Revenue Office in Salem.
That’s because Oregon automatically connects its income-tax code to many federal tax provisions. And the GOP tax bill envisions some big differences in deductions that would be adopted by the state.
Chief among them is the Republican proposal to allow taxpayers to deduct no more than $10,000 in property tax payments. The proposal would also lower the amount of mortgage interest that could be deducted from income taxes. The current maximum is $1 million, but the bill would lower it to $500,000 for new mortgages.
Warner said his office hasn’t yet figured out the revenue impact of those changes. But he said he thought it would be relatively modest.
Rep. Earl Blumenauer is an Oregon Democrat and a member of the House Ways and Means Committee. He said both of those tighter limits would be more significant in future years as property taxes and home prices rise.
Blumenauer said the Oregon example is one of many unintended impacts that he expects to crop up as Republicans race to push the bill through Congress.
The Ways and Means Committee may begin working through the bill as early as Monday, which Blumenauer called “obscene” for one of the biggest proposed tax changes in the last 30 years.
Still, it’s not unprecedented for Congress to make tax changes that reverberate at the state level. The last big tax overhaul bill that passed Congress in 1986 also swept away many big deductions. Oregon legislators decided not to keep most of the revenue. Instead, they wound up lowering the state’s top income tax rate by 1 percentage point.
Legislators could also revamp Oregon law to preserve the mortgage and property tax deductions if this bill wins approval in Congress.
The Republican bill calls for lower rates that they say would reduce taxes for a large number of taxpayers. Those lower rates would not affect Oregon tax law, which has its own rate structure.
Rep. Greg Walden, Oregon’s sole Republican in Congress, generally praised the plan released on Thursday.
“I look forward to working with my colleagues to provide a simpler, fairer and more affordable tax system for hardworking Oregonians and their families,” he said in a statement.
But Blumenauer and Oregon Sen. Ron Wyden, who is the top Democrat on the tax-writing committee in the Senate, both said they would work to highlight the major flaws they see with the Republican plan.
Wyden said, for example, that the bill might provide an “itty-bitty sliver” to middle-class families. But he said the elimination of the deductions for those with high medical costs and for student loan repayments could be devastating to many people.