The battle playing out in the 2026 Oregon Legislature over disconnecting from the federal tax code tells you a lot about how government works – or more accurately doesn’t work – in Oregon.
Before discussing the math – and math always matters when you tinker with the tax code – let’s look at the motives of those who favor the disconnect and the context for the proposed changes.
Motive 1: Preserve money for the Legislature to spend. This almost always is a primary objective behind Democratic proposals in the Legislature.
Context: As is often the case, it’s not clear how legislators would spend the money. While they certainly have a long list of favored groups, organizations and projects, Oregon Democrats have a dubious track record for managing the money they collect. This fault has been most obvious in Portland, which currently has more than $100 million in unspent taxpayer dollars that were supposed to be for housing. As for the Legislature, its plea that it must disconnect from the federal tax code to fund programs rings hollow when you consider that the state economist just last week released a revenue forecast projecting $156 million more to be available than previously expected.
Motive 2: Keep the public employee unions who are the primary funders of the Oregon Democratic Party happy. This always is a priority for Oregon Democrats, but it stands out even more now because the unions are unhappy.
Context: The unhappiness stems, in part, from the failure of the transportation bill that Gov. Tina Kotek and Democrats tried to ram through the Legislature on their behalf. The unhappiness manifested itself in a social media campaign aimed at moderate Democrats who opposed disconnecting from the federal tax code. Public employee unions almost always get what they want in Oregon, and they are proving to be ill-tempered when faced with even the most minor of fiscal diets.
Motive 3: Punish the “rich.” Democrat supporters of the tax-code disconnect have been vocal with their belief that the federal tax changes favor the wealthy and would drain revenues from programs that benefit “everyday Oregonians.”
Context: Even if that were true – and it’s a dubious claim in part because “wealthy” and “everyday Oregonians” are inherently subjective terms – the statement ignores the fact that Oregon’s tax code already has several features that make the state less hospitable to the “wealthy” and corporations, so much so that the state is losing businesses at a dangerous pace and there’s growing anecdotal evidence that individuals also are fleeing the state for tax reasons.
And it’s not just the “wealthy” who are punished. The upper middle class are among the most penalized by Oregon’s tax code, particularly its low floor for application of the state’s estate tax. Meanwhile, the elements of the tax code that Democrats want to disconnect from are technical and would affect “everyday” activities such as car loans in addition to business transactions. Trying to disconnect from parts of the federal tax code they dislike while staying tethered to other aspects would be complicated and difficult – and almost certainly beyond the competency of the Oregon Legislature. Someone remind me who the Democratic experts on economics and taxation are in the Legislature.
Now the math: Democrats say the federal tax changes would reduce Oregon revenue by an estimated $888 million over the next 18 months. That’s a worst-case (or best-case depending on your perspective) scenario and likely an inaccurate projection for several reasons. Among others, it assumes that the changes Oregon makes would do no economic damage – such as encouraging even more businesses and comparatively wealthy households to leave the state. It also assumes the adjusted federal tax code, if left like it is, won’t have any positive impact. The most recent state revenue report shows that the economy sometimes (often in recent years) outperforms expectations.
Bottom line: Tinkering with the tax code is a risky exercise, one almost certainly beyond the expertise of Oregon Democrats. The end result would be to make it more difficult for businesses and individuals to file their taxes without any guarantee of producing additional revenue.
If legislators have any goal other than to appease union donors, they should leave the tax code as is and focus on more pressing matters – like reducing homelessness and retaining and recruiting businesses that employ “everyday Oregonians.”
This article originally appeared in the Oregon Roundup.