Oregon federal tax disconnect fuels state quarterly revenue growth

The June Oregon Economic and Revenue Forecast is a good reminder that state revenue is not the economy.

The quarterly report, which came out May 20, shows an economy struggling against rising energy prices and falling wage strength while the state takes in higher revenue from growing corporate and financial market profits.

For budget watchers thinking about education funding, this year's funding is secure for now, and the report offers a little encouragement for the 2027-29 budget.

State economists told a joint meeting of the House and Senate revenue committees that the 2025-27 General Fund revenue forecast is up $345 million from the last quarter, but that is almost entirely due to Oregon disconnecting from provisions in the federal tax code.

The federal HR 1, known as the "One Big Beautiful Bill," cut federal taxes in July 2025. The Oregon tax code is connected to the federal code, meaning Oregon General Fund tax revenue was automatically cut nearly $900 million.

Strong revenue growth filled some of that hole, and the Oregon Legislature passed Senate Bill 1507 to do the rest. SB 1507 "disconnected" the Oregon tax code from parts of the federal code for a net effect of increasing Oregon's revenue roughly $300 million.

Without that bill, Oregon's quarterly forecast would have been down $23 million, according to the forecast. According to the Legislative Revenue Office summary, Oregon is sitting at $31 million above net General Fund and lottery revenue close-of-session predictions for 2025-27.

Oregon revenue is mostly chugging along because recent tax filings show the people in the top tax brackets made more money last year than predicted.

For 2027-29, the General Fund and lottery revenue estimate is up $431 million from the first-quarter projections, according to the LRO summary.

Legislators will mostly build the state budget, including the 2027-29 State School Fund, off the forecast they will receive in February.

A lot of uncertainty lies between now and then, including continued hostilities in the Middle East, federal tariff moves and a likely repeal effort for SB 1507.

- Jake Arnold, [email protected]