Senate President Peter Courtney confirmed his support Wednesday. The proposal would stop a federal deduction on certain types of income from also being automatically deducted from Oregon taxes. Altogether, changes in the federal overhaul law were forecast to cost the state up to $217 million over the next two years, according to a report released by the state economist last week. The bill would reverse that impact, and collect $27.4 million extra in taxes, or about $244.4 million altogether.
The measure’s future had been in question after Senate leaders sent the bill back to committee. Concerns had earlier been raised that the bill didn’t completely fill the funding hole created by the Tax Cuts and Jobs Act, a recent overhaul of federal taxes championed by President Donald Trump.
Oregon uses figures from residents’ federal tax forms to calculate state taxes, so changes to federal law automatically carry over to the state’s own system. The proposal targets one particular change - a 20 percent deduction on special types of business income, which individuals are able to claim on their personal taxes instead, known as pass-through income. Instead of allowing residents to use the same deduction on their state tax forms, the proposal would require residents to first add the deduction back on, effectively undoing it.
Courtney voted to send the bill back to the Senate floor Tuesday, and said Wednesday that he supported changes made to the bill in the Senate Finance and Revenue Committee.
The committee kept the core element of the bill - blocking the pass-through deduction. But the committee stripped away separate tax breaks, including an increase to a small discount that would have applied to most individual taxpayers and a clause that would have expanded eligibility for a business tax deduction.
Sen. Brian Boquist, a Republican, voted against the bill in its original form and again on Tuesday.
“It’s a $1.2 billion tax increase on small businesses,” Boquist said Wednesday. Boquist said he thought the bill would be vulnerable to a court challenge if Democratic legislators didn’t pass it with a three-fifths majority, which is required for tax increases.
The committee also kept a provision in the bill that would give high earners a way around one new limit set in the federal overhaul. The federal rules set a limit on taxpayers ability to deduct payments to their state from their federal taxes. The bill would allow people with higher state tax bills to buy credits for the portion of their taxes over the limit, with the proceeds going to the Oregon Opportunity Grant Fund and counting as charitable contributions on their federal taxes. The credits would be distributed through a competitive auction held by the state.