HR 1, the One Big Beautiful Bill Act, broke Oregon's budget. With limited time available in the short session, Oregon lawmakers are working quickly to put back together the pieces of the state's budget puzzle.

If Oregon doesn't increase its revenue in this biennium, it faces the possibility of hundreds of millions of dollars in service cuts that could potentially include school funding. The Legislature moved one step closer this week to repairing the budget when Senate Bill 1507 A, the "federal disconnect bill," passed out of the Senate Finance and Revenue Committee.

Oregon is in the minority of states that automatically connect to the federal tax code. Federal policy changes, such as new deductions, that lower federal taxable income in turn lower Oregon taxable income. In theory, this makes the tax filing process more straightforward for Oregonians. But it can also be costly to the state.

HR 1, passed by Congress in July of 2025, included new tax deductions at the federal level. The Legislative Revenue Office estimated that if nothing was done at the state level, Oregon would lose $888 million in tax revenue due to those federal changes.

SB 1507 would "disconnect" Oregon from certain new portions of the federal tax code. Under the amended bill, taxpayers would still see the full benefit of the HR 1 changes in their federal taxes, but for Oregon tax-filing purposes, some of those deductions would need to be added back, making state taxable income higher than federal taxable income for some individuals and businesses.

Specifically, SB 1507 would disconnect from the tax credit provisions in HR 1 for:

• Interest on loans for the purchase of new vehicles that had final assembly in the United States.
• Gains on the sale or exchange of qualified small business stock.
• Expanded bonus depreciation on real property in the first year of service.

The bill would also include some additional Oregon-specific tax relief. The bill would increase the Earned Income Tax Credit value. It also would create a credit for businesses that add new jobs paying at least 150% of minimum wage, as verified by the Oregon Business Development Department. Businesses would be eligible for credits of $1,000 per new job, capped at 10 per employer, and a total cap of $12.5 million in credits statewide in a given tax year.

Between the revenue retained through the changes and the additional credits included, SB 1507 is predicted to net $300 million in revenue for Oregon.

The bill was voted out of committee Monday, Feb. 9, and is expected to come to the Senate floor sometime next week. Expect lively debate as many in the business community and among the Senate Republicans have expressed opposition to the latest iteration of the bill.

- Stacy Michaelson

OSBA Government Relations and Communications director