Controversial tax plan could produce unexpected surplus

The dome of the Oregon state Capitol as seen Monday, Jan. 29, 2018. (Photo: Steve Benham/

SALEM, Ore. (AP) — The Oregon Legislature's response to President Donald Trump's federal tax overhaul will capture more than $200 million more than the state needs to meet lawmakers' goals, if predictions from the state's head economist prove accurate.

Lawmakers have portrayed their plan as a way to avoid a negative impact on the state from the Trump overhaul. The plan's architect said it would keep state tax revenues close to what they had been before the federal change, which would otherwise drive down state tax collections.

And lawmakers followed normal procedures in using a more conservative forecast to calculate the impact of the overhaul. But an official forecast by the state's head economist indicates the state plan could raise $203.9 million more than the revenue lost to the federal change.

The plan, SB 1528, generated pitched debate on the floor of the state House Friday, then passed with a 32-28 vote, sending it to Gov. Kate Brown for her signature.

Republican legislators said the plan amounted to a tax increase on small businesses.

"We're telling them, 'you can't have your tax break,'" said Rep. Julie Parrish, R-West Linn.

Sen. Mark Hass, a Democrat from Beaverton and the architect of the plan, said in an interview Friday morning that any surplus from the plan would go toward filling the rest of the state's budget.

The bill blocks a new federal deduction, included in the overhaul, from automatically carrying over into the state's own tax calculations. Instead, residents will be required to not include the federal deduction when calculating their state taxes. In effect, Oregonians will still get the discount on their federal taxes, but their state taxes would remain the same, according to proponents.

The potential for a surplus from the plan arises out of a disagreement between forecasts put out by two branches of Oregon's government for how large of a negative impact Trump's Tax Cuts and Jobs Act will have on Oregon. Economists generally agree that the plan will create a revenue drop for the state in the near future, but differ on how big the drop will be.

One of the forecasts, put out by economists in the Legislature, shows how much the state stands to lose if federal law changes but everything else remains the same. The other, put out by the state economist, who works in the executive branch, also factors in how much the economy will change during the period in question.

Issued each quarter, the latter forecast is the state economist's final prediction for how much revenue the state will receive in coming years.

In the most recent state report, the difference between the two estimates was large. By the static estimate the Trump overhaul should cost the state about $217 million in the next two years. But the state economist Mark McMullen predicted last month that increased economic activity and other forces will likely generate about an extra $177 million in revenue for the state over the same period, wiping out all but $40.1 million of the negative impact from the overhaul.

Hass, who heads the Senate Finance and Revenue Committee, and Senate President Peter Courtney, used the more conservative number as a target: the plan is set to collect about $244 million over two years, $203.9 million more than the revenue drop predicted by the state economist.

Chris Allanach, head economist at the Legislature, and one of the economists who helped put together the static forecast, said lawmakers followed normal procedures by using the more conservative number as the basis for their calculations.

"It's less speculative," Allanach said, noting that while the immediate addition and subtraction of changing tax rates is relatively straightforward, figuring out what people will do with that money, and how that will effect the economy, is more difficult.

Asked about the potential for a surplus, Hass said any additional funds would only help the state.

"If there's a notion here that we're rolling in dough because of this thing, then they're not looking at where we are," he said.

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