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(Oregon Public Broadcasting) a The big tax measure passed by Congress and signed by President Donald Trump late last year did more than cut federal taxes. It also could lead to a major tax break for Oregon businesses.

Gov. Kate Brown and Democratic legislative leaders say they’re concerned that the tax breaks would blow a hole of more than $200 million in the current Oregon state budget. And they’re looking at making changes to roll back those breaks.

“That’s a significant hit,” said House Speaker Tina Kotek, D-Portland, adding that dealing with these breaks is one of the the “bottom-line things we have to do” in the legislative session that starts Monday.

Republican lawmakers are skeptical about the need to immediately act on the business tax provisions.

“I don’t think it’s going to be as severe as what the speaker and others are saying right now,” said House Minority Leader Mike McLane, R-Powell Butte. Eventually, he said, the tax cut could generate additional revenue for the state.

One other tax issue from the new federal law also looms large in the next legislative session. Senate Finance Chairman Mark Hass, D-Beaverton, said he wants to ease the impact on higher-income taxpayers in Oregon who are particularly hurt by the $10,000 limit on deducting state and local taxes from their federal returns.

Like officials in such states as New York and California, Hass is looking at a potential workaround aimed at turning some state income tax payments into charitable deductions, which are still fully deductible.

“I’m not saying this is going to pass,” said Hass, adding that he wants to give the Legislature a chance to consider the tax change he said is unfair to many Oregonians.

The business tax issues came up because Oregon automatically connects to many federal definitions of taxable income.

Two provisions in the new federal law particularly affect Oregon. One expands the tax break for businesses known as “pass-through” entities. These are businesses where owners pay personal income taxes — as opposed to corporate taxes — on their profits.

The federal break will cut state income taxes for qualifying Oregon businesses by an estimated $280 million in the current budget cycle, which ends in mid-2019, according to the Oregon Legislative Revenue Office.

The other effect on Oregon is the so-called “repatriation” provision in federal law that levies taxes on multinational corporations with money stashed overseas. Chris Allanach, the legislative revenue officer, said complicated provisions in the federal law wind up reducing taxes for some corporations in Oregon. That could cost the state another $80 million to $100 million in the current budget.

Other provisions in the federal tax bill actually increase state revenue. But the net effect is a loss to the state budget of about $200 million to $220 million, Allanach said.

Hass is moving forward with legislation that would roll back those breaks. He argued that there is no logic to providing new business tax breaks, particularly when he and many other Democratic legislators have argued Oregon already went too far providing 2013 tax cuts for businesses with pass-through income.

“You shouldn’t get seconds until everyone else gets through the line at least once,” Hass said.

Business interests are already lining up to oppose the tax changes. Oregon Business & Industry didn’t make any of their officials available for an interview.

But in a statement, Chairman Sam Tannahill said that “it is in the best interests of our state to give Oregon businesses incentives to make job-creating capital investments, including the full depreciation and expensing provisions” in the new federal law.

Sen. Herman Baertschiger, R-Grants Pass, another member of the finance committee, said lawmakers should wait on changes until they see how the new federal tax law plays out.

"I think we're going to be surprised with the revenue we're going to get in the next few years," he said, "as long as the economy keeps going."

Daniel Hauser of the Oregon Center for Public Policy, which advocates for a left-of-center tax system, said the state shouldn’t be giving away additional revenue when it’s already struggling to adequately fund schools.

“It is a substantial tax break to business owners well in excess of any tax break we would be providing wage earners,” he said, noting that it would be politically harder to get rid of these new breaks once businesses start receiving them.

Hass said he would like to plow some of the savings from curtailing the business pass-through tax breaks into a modest reduction for all Oregon income taxpayers. His proposal would provide a reduction of less than $100 for tax returns filed by an individual.

Hass said he is also looking at helping higher-income taxpayers affected by the new limits on state and local deductions.

Oregon is among several states with high income taxes where officials complain that many of their residents are unfairly hit because of its progressive income tax — which takes a bigger bite out of wealthier taxpayers than is the case in states with different tax systems.

For example, a study from the Washington, D.C.-based Institute on Taxation and Economic Policy estimates 20 percent of Oregon taxpayers earning between about $115,000 and $235,000 will actually pay more in federal taxes under the new law. In Washington state, which has no state income tax, only 6 percent of this group are predicted to pay higher taxes.

Hass proposes Oregonians get a tax credit for contributing to the state's college scholarship program, which they could use to reduce their state income taxes by the same amount. In essence, taxpayers would be shifting some of their costs from tax payments into charitable deductions, which haven’t been curtailed by the new federal tax law.

The state has a similar tax credit — for the film and video industry — that has not been challenged by the Internal Revenue Service. But that could change if a number of states try to do it on a much larger scale. 

“We’ll see what happens now that California and New York are making a big deal of this,” said Allanach, the legislative revenue officer.

Hass said Democrats are moving forward on their tax changes with the assumption they won’t need a three-fifths majority in the Legislature to pass them. The state constitution requires a three-fifths vote on tax increases. But the state Supreme Court has ruled that this basically applies to rates — not necessarily changes in how those rates are applied.

That ability to pass bills on a simple majority could be politically important. Democrats are one vote shy of a three-fifths majority in each of the chambers. But they do have a majority.

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