The reconciliation bill passed by the U.S. House is truly monstrous, slashing health care and nutrition assistance to help pay for tax cuts that mainly would go to the rich. But there’s more harm that would flow from the bill.

One thing that hasn’t gotten a lot of attention is the fact that the reconciliation bill threatens to shrink Oregon revenue collections, due to the way our state tax code connects to the federal tax code. As OCPP Deputy Director Daniel Hauser explains in this episode of Policy for the People, if the US House reconciliation bill becomes law and the Oregon legislature does nothing, Oregon will end up having less money to address the needs of Oregonians, just when there will be greater need due to the federal cuts to health care and nutrition assistance. 

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Transcript

We make this transcript available for your convenience and to increase the accessibility of our content. The transcript was generated by software and was slightly edited for clarity. If you are able to, we encourage you to listen to the recording.

Even though its proponents call it the one Big Beautiful Bill, a better name for the reconciliation bill passed by the U.S. House of Representatives a few weeks ago might be the Big Ugly.

The proposed legislation is certainly massive, taking up more than a thousand pages. But what’s in those pages is a monstrosity. As many critics have rightly pointed out, at its core, the package slashes health coverage and food assistance for struggling families. It does this in order to help pay for tax cuts that would mainly go to the rich. 

But one thing that hasn’t gotten a lot of attention is the fact that the bill threatens to shrink Oregon revenue collections, due to the way our state tax code connects to the federal tax code. So if the US House reconciliation bill becomes law and the Oregon legislature does nothing, Oregon will end up having less money to address the needs of Oregonians, just when there will be greater need due to the federal cuts to health care and nutrition assistance. 

My colleague Daniel Houser wrote an article analyzing this issue. Daniel is the deputy director of the Oregon Center for Public Policy. I spoke with Daniel about his analysis. Here is our conversation. 

Juan Carlos Ordóñez (host): Daniel, a couple weeks ago, the U.S. House of Representatives passed a budget reconciliation bill. It’s a massive piece of legislation, isn’t it? 

Daniel Hauser: Yeah. Massive feels like an understatement, like a over a thousand pages. It looks like it could be a weapon in some alternate universe. It’s an enormous piece of legislation. 

And it’s not just the sheer magnitude of the pages. It’s the changes. I mean, the amount of things they’re doing to the civil service, to how we determine whether or not a nonprofit has tax eligibility, to whether or not people can access certain tax credits, to Medicaid, to food assistance, to border security. I mean, it is truly a monster, both in size and content. 

Juan Carlos: And it’s interesting that some lawmakers have even acknowledged that they didn’t read the whole thing before voting on it and voting to approve it. 

Daniel: I’d be impressed if any of the lawmakers read the whole thing. 

Juan Carlos: You’ve written a piece recently that says that if this bill becomes law, it will have an impact on Oregon tax collections. What’s your main takeaway in this article? 

Daniel. I imagine some of the listeners have heard of this big budget reconciliation bill. Trump and Republicans have referred to it as the One Big Beautiful Bill Act. This bill includes so many different measures. Like I noted before, cuts to Medicaid, the Oregon Health Plan in Oregon, are getting a lot of the focus and a lot of the attention because it could result in many thousands of Oregon families getting kicked off of health care. Cuts to nutrition assistance.

The SNAP program is one of the largest federal programs that Oregon participates in that gets people food, keeps people from going hungry, keeps children fed. Those are getting cut in this bill. There are all sorts of other things in it as well. But the key reason that they’re packaging all this stuff together is because they want to pass a big pile of tax cuts and tax cut extensions.

And as part of that, Oregon will automatically connect to. And I’ll get into the weeds and what that means later. But we’ll automatically connect to a bunch of those federal tax cuts that disproportionately help the very richest people in America. We’re going to do the same thing here in Oregon. We’re going to automatically connect to them.

And the really the crux of the paper is pointing out or this connection to the federal tax code that will result in all sorts of changes to the Oregon tax code if they pass this budget reconciliation bill federally. It’s going to blow a huge hole in Oregon’s general fund, our general fund being the way we fund the core services that Oregonians need to make ends meet.

Juan Carlos: Before we get into those specifics of the connection to the federal tax code, can you remind us how we got here? Why is Congress even having to make this decision on a massive tax and budget package at this particular time? 

Daniel: In Trump, 1.0, in his first term in office, Congress passed something called the Tax Cuts and Jobs Act. And this was done in 2017. This package of tax cuts largely pushed the tax cuts towards corporations and towards the very richest households. So low income working families got peanuts, the richest got a huge tax cut. But how they had to structure it to get around Senate rules, because they wanted to get around the filibuster, is by using this tool called the budget reconciliation process.

To do that, they had to make some of the tax cuts temporary. They made a bunch of the tax cuts for corporations permanent, right. Shocker. But most of the individual income tax cuts, the ones that give peanuts to working families and really significant giveaways to the rich, they made temporary. And they expire without action at the end of the year.

So that’s really set up this crisis. It set up this challenge for the federal government and Congress. What do we do with this opportunity?, I think, as it’s seen by the Republicans, this opportunity to reassess this package of tax cuts. Because the tax cuts were so large and so egregious in many ways, there’s a really big budget impact from the tax cuts. I mean, trillions of dollars, an increased federal deficit, as a result of these decisions that were made in 2017. When they go to renew them, they’re looking at, How can we renew all of these tax cuts and give big breaks to the rich?

But we don’t want the deficit to grow quite that much. So how can we also cut services for low income families? How can we eviscerate health insurance and food assistance as a way of saving money? So that way we can afford those really big egregious tax cuts for the rich. 

Juan Carlos: The original 2017 Trump tax cuts, as you said, peanuts for those at the bottom and big giveaways to those at the top. How do the tax cuts in the current package compare to those back then? Are they pretty much just renewing these tax cuts? Are they pretty much the same? What’s the story there? 

Daniel: There’s a huge pile that is just being renewed. And then there are a number that are being changed in little ways while being renewed. But there are a whole bunch of completely new ideas, totally new campaign promises that Trump put out there, or that they’ve been able to kind of weasel into the bill, as they’ve been developing this at 2 a.m. in the morning behind closed doors. So there are a whole bunch of new tax policies in there that are going to be really problematic, even if some of them sound nice.

So one example of that is the proposal to exempt from taxation overtime pay. And overtime pay is the kind of thing that people identify with families with a blue collar job, someone taking an extra shift to help make the rent. They imagine something that’s very hardworking family-oriented. But what we see in practice is that a lot of the families that would, in fact, benefit from exempting overtime from taxation are actually quite high income. A disproportionate share of this tax break would flow to high income earners. This wouldn’t be going to the lowest earning 20%. It’d be going disproportionately to the richest 1 in 5 workers in Oregon. 

So that’s just one example of the ways they’re expanding on the tax cuts in this package. As I mentioned, there’s a thousand pages in the bill. My pages of notes are not quite that long, but there are dozens of provisions that are new tax cuts. Some of them, like no tax on overtime, sound reasonable. But when you dig in, they’re not. 

Others don’t actually sound all that reasonable. To give you an example of one of those, they’re proposing that if you want to take some stock that has appreciated over time and is now worth more, you can donate it to a private school voucher fund. And then you could avoid paying any tax on a lot of those gains that your stock has had over the last decade or what have you. So, we’re talking about undermining public education. We’re talking about tax breaks disproportionately for the richest households. And that statement could apply to the tax cuts that they’re renewing and too many of the new tax cuts that they’re piling into this trillions-of-dollars package.

Juan Carlos: Do we have numbers of the distribution?  Who gets what from this overall tax package? 

Daniel: Yeah, if we look at the package as a whole, the Institute on Taxation Economic Policy has assessed how it will flow to different income levels in Oregon. So this is specific to Oregon as a result of the federal tax breaks. So the lowest earning 1 in 5 Oregonians, the bottom 20%, these are folks who make less than $27,000 a year. They’ll average about $130. If we look at folks in the middle, the middle earning 20%, a working family making around $50,000 to $90,000, they’ll get about $1,500. So we’re starting to get a little bit bigger as we go up the income spectrum. But then things completely collapse in any attempt to make this sound like it’s actually helping working families when we get to the richest 1% of Oregonians. These are folks who make more than $750,000 a year. They’re expected to get a tax break of more than $41,000. The tax break for the richest 1% is more than anyone in the bottom 40% of Oregonians makes an entire year. The whole amount low income households are making in a year to afford their rent, car payments, the cost of childcare, every cost that they’re running into – the amount they make in a year is less than the tax cut that’s going to be going to the top 1%.

So this is a really upside down package looking just at the tax side, without even considering the fact that we’re also going to be kicking many of those families off of their health insurance and leaving them hungrier and sicker. 

Juan Carlos: Daniel, I want to go back to something you said earlier, which is that even the provision in the reconciliation bill that would eliminate taxes on overtime pay disproportionately favors the well-off, which is a bit surprising. Can you flesh that out for us? Why is that? 

Daniel: Yeah. Overtime, we have to keep in mind, only helps families and individuals and workers that are able to receive overtime and do receive overtime. There are all sorts of other workers in our community who are not going to be able to access overtime. So consider, for example, someone who works two part time jobs and works 50 hours a week. They aren’t getting overtime even though they’re working ten hours more than 40 a week, right? If they were working in one job, they might get overtime on the last ten hours. But because they’re having to work multiple jobs to kind of piece together a living, they wouldn’t receive any benefit from this tax cut. 

And that really points out what I think is one of the key challenges with picking something like overtime, or tips, or this particular part of income and saying, “We’re going to not tax that on.” It really creates winners or losers.

It’s different than means-testing a policy and saying, “You know what, we want to support low income working families. How about if you make $30,000 a year, we give you an extra two grand in a tax cut or a tax credit?” That’s the kind of thing that would help someone if they work two jobs, or one job if they worked overtime or not. That’s the kind of even, neutral way of supporting low income families that we should be looking at and that we have supported in the past. But not when you pick out something like overtime. Consider someone who works 50, 60 hours a week driving Uber, doing rideshare or gig work. They’re independent contractors. They’re not getting overtime. 

On the flip side, there are some high earning workers who do get overtime even though they already are in the top 20% richest households right in the state. So when they ran the numbers on just a no tax on overtime nationally, they estimated that 57% of the tax benefits would go to the top 20%. That richest 1 in 5 Oregonians or Americans would get almost 60% of the benefits. The bottom 40% would share 2% of the benefits. 

So if we want to talk about a policy that sounds nice but in practice is not, then I think no tax on overtime is a great example.

And keep in mind, we’re talking about losing federally tens of billions of dollars per year to this tax break. Here in Oregon, potentially hundreds of millions of dollars that are no longer available to invest in our schools, to give the top 20%, disproportionately a tax break on their overtime income. 

Juan Carlos: Let’s go back to the point where we began, which is that this massive tax package will have an impact on Oregon tax collections. Certainly, it’s going to affect tax collections at the federal level, of course, because it’s a massive tax cut. But it’s also going to reduce, you said, Oregon tax collections. Why is that?

Daniel: I’m not sure there’s a more complicated piece of tax law that seems to be a battle every couple of years. So this concept of tax connection is really helpful to kind of disentangle and try and understand because it’s really important. It results in billions of dollars in changes to Oregon’s tax system. 

So there are two really key things. One is where we connect to the federal tax code. And the second is how we connect. So the question of where we connect in Oregon, we currently are connected to the definition of taxable income. So that includes all the additions, subtractions, itemized deductions. It includes basically everything except for tax credits and then tax rates. We could connect at a different point right. Other states choose to connect at adjusted gross income or at other points in the tax breakdown. And there are also circumstances where we explicitly don’t connect to things because we’ve made a decision as a legislative body, as a population, that we don’t want to.

So how we connect is the second part of that. We can either connect at a point in time, which is known as a static connection. So we might say we’re going to replicate the federal tax law here in Oregon as of January 1, 2024. So that would be a static connection point right there. Anything that’s in the tax law at that date, it’s also part of Oregon tax law. 

The other way of doing it is what’s called a rolling reconnect. With a rolling reconnect, whenever Congress changes the federal tax law, Oregon automatically duplicates it here in the state. And so, one good example of this is when they changed itemized deductions in the 2017 Tax Cuts and Jobs Act, they restricted the mortgage interest deduction from $1 million in mortgage debt to $750,000 in mortgage debt. Oregon didn’t pass any law, didn’t do anything to make it to where Oregon only allowed you to deduct $750,000 in mortgage debt. It just automatically became the way it is here in Oregon. So rolling reconnect is really this idea that Oregon will automatically connect to wherever we’re connected in the tax code. Static connection is this concept that we will connect to the tax code just at a point in time at a specific date.

The upside of a static connection is that if Congress changes the tax code and does a bunch of bad things like they might be doing in this huge, ugly bill they’re debating today, Oregon would have a chance to decide whether or not we want to connect. Versus rolling reconnect, where it’ll just automatically become state law, and then we’ll have to figure out what to do with it from there.

Juan Carlos: Maybe to get to how it would really affect Oregonians, if this US House reconciliation bill ultimately becomes federal law and the Oregon legislature doesn’t act, what kind of impact could it have on the state budget and on the lives of Oregonians? 

So there’s an ongoing analysis and debate among lawyers and state officials about which provisions in the more than one-thousand page bill Oregon would connect to. A few of the items seem more clear, such as Oregon’s rolling reconnect will duplicate the exemption for overtime income. Others are less clear, like how some of the changes to the international corporate tax policies will impact corporate taxable income here in Oregon.

But as soon as it does become federal law, many of the provisions will start in the 2025 tax year. They’ve set a bunch of these tax breaks in the big bill federally to start in the current tax year. So effectively retroactive. And so that means the state would have to figure out very quickly where we are and are not connected, so Oregonians could start adjusting their withholdings on their paychecks, quarterly tax payments for some folks who, you know, submit quarterly payments. So that also means Oregon would immediately start losing revenue it would otherwise expect to receive, and already planned on spending to fund education, human services, housing, and all sorts of other services our families need. 

Juan Carlos: Do you have a sense, or does the state have a sense, of how much money is at stake here? How much revenue Oregon could lose from all these different connections to the federal tax code? 

Daniel: Yeah, it’s hard to say at this time with precision what it’ll mean in total, but certainly in the tens or hundreds of millions of dollars in lost revenue every year. Real money. 

And there are three reasons why we can’t be a little bit more certain at this time. First, we don’t know with complete certainty all the provisions will automatically connect to. We don’t know what the Senate’s going to do to the bill. We don’t know what will end up coming out of the Senate that Trump theoretically will sign, and which of those provisions for sure Oregon will or won’t connect to. So it’s hard to have a complete picture at this stage. 

And second, we don’t have precise revenue estimates for most of the provisions or even imprecise estimates for many of them. The no tax on overtime, as an example, is one where the price tag has been estimated by a national group and more than $300 million per year in Oregon in lost revenue. That’s a lot of money. I mean, that is on the magnitude of what’s needed to address wildfire prevention and protection in the state. And so that’s kind of the second challenge. It’s just like, we don’t know how much each of these particular provisions are.

And finally, some small parts of the federal tax changes could raise revenue in Oregon. One example is we in Oregon have a federal tax subtraction. And that means that some people can deduct their federal taxes from their Oregon income tax. So if Oregonians on the whole pay less federal tax, even if it’s disproportionately rich people paying less federal tax, then we end up with with a smaller federal tax subtraction, right, because we’re paying less federal taxes and therefore, Oregonians would owe more to the state of Oregon because that particular tax break would be smaller.

So the parts that raise revenue will likely exist in the final bill, but they’re going to be far smaller than the parts that cost the state revenue. So we know it’ll be negative on the whole, we just can’t say what the sum is at the time the precise number. We really need the Senate bill to be signed to know for sure. 

Juan Carlos: What happens at the end of the day if the Oregon Legislature fails to disconnect from all these new federal tax provisions that cost the state money, and we end up losing hundreds of millions of dollars in the current budget period?  What does that mean ultimately for Oregonians? How could it impact their their lives?

Daniel:  It’s a little bit hard to say with certainty because it depends how the legislature responds. Right now Oregon lawmakers are debating a budget based on a revenue forecast for the next two years that just assumes that the current set of tax cuts is renewed. It doesn’t assume any meaningful expansions to tax cuts. It also doesn’t assume any lost revenue from connection to new tax cuts. So if we do end up, as you set up as a scenario, connecting to hundreds of millions of dollars in lost revenue, that means the legislature will have approved a budget that assumes that money comes in. 

If that money then doesn’t come in and we have a September revenue forecast or a December revenue forecast this year that shows that we’re actually on track to get $300 million less per year as a result of connecting to these federal tax proposals, the legislature’s gonna have to decide, what $300 million are they going to cut from  education, shelter, childcare. I mean, the list goes on and on. They’re gonna have to cut from existing programs, from things that they’re approving and debating today. They’re gonna have to slash those down by hundreds of millions of dollars, or they’re going to have to find some way of raising revenue. And our legislature here in Oregon does not have a history, at least not in the last 15 years or maybe 18 years, of stepping into crises and making hard decisions to raise taxes. They should. They could, but it’s not necessarily what our history has shown us is a likely outcome. 

So what that means, then, is they’re going to be cutting these services, cutting these programs, unless they can find the money elsewhere. 

Juan Carlos: So what would need to happen for the legislature to not follow these federal policies if they get enacted? What are the steps that need to take place? 

Daniel: The best move that they can make today is to just shift to a static connection. We talked about before about the difference between static and rolling reconnect. If we move to a static connection point, that means none of these new tax breaks will automatically become part of tax law in Oregon. The legislature then would have time to decide, do we want to connect to some of these? Do we want to stay static and not connect to some of these? So really, the best thing they can do in this session is to move to permanent static connection. The Oregon House did go ahead and approve a static connection bill for just the 2025 tax year, our current year we’re in right now. The Senate should pass that. That’s a good starting point. At least it buys us a year. But it will drop us off in January 1, 2026, reconnecting fully to the federal tax package. And then we will have to have that second part of the conversation I referenced, which is what do we want to disconnect from now that we’ve automatically doubled down on all of these terrible ideas? Which of them are we going to disconnect from because they’re going to cost us hundreds of millions of dollars. They’re going to disproportionately flow to the richest households. They’re going to turn our tax code into Swiss cheese. With all these new tax breaks. So the legislature in the short session that’ll start early in the 2026, calendar year, they’ll have to figure out which of these are we going to disconnect from. And those are going to be really hard conversations. 

So the best move is to shift to static. Allow us to decide we want to connect to something rather than the default being this rolling connection where we’ll have to have these hard conversations about what to disconnect from because it’s already in tax law in Oregon. 

Juan Carlos: Daniel, any final words of wisdom you want to share with us regarding the reconciliation package, the so-called One Big Beautiful Bill and what it means for Oregon tax collections, and just generally the well-being of Oregonians?

Daniel: We’re talking about a package that has so many layers of harm. You know, a lot of the broader public discourse has been around, we’re going to cut health care. We’re going to cut food and nutrition assistance from these families. We’re going to do these cuts. That way we can pay for tax breaks for the richest billionaires and households all around the nation. And I think that is a place where we should be focusing, and we should be emphasizing.

And what we’ve added today is a little additional piece, which is Oregon’s going to double down on these tax breaks, right. We’re going to give bigger gifts to the rich and wealthy. And we’re going to have even less money to fund the services Oregonians depend on if we do end up with it.

And if Oregon is connected to it and doubling down on it, then Oregonians also have a really prime opportunity to stand up and talk to their neighbors. Talk to people who live in their community, who are representing them in Salem, and tell them, look, we cannot be doubling down on these tax breaks. We have to protect the families in our community that are struggling the most. And we can do this by shifting to a static connection. We can do this by disconnecting from the most egregious measures. 

And we can do this by really reversing the horror that exists in this huge, ugly bill by taxing the rich and corporations more too. We can reverse some of the errors that are part of this federal tax package. You know, just as they’re cutting taxes for the rich, we can raise them right. And we can use that to invest in families in our state. 

So I hope people take away from this the fact that there is something we can do. There is agency. There is opportunity here in Oregon to address some of the flaws that exist in this federal tax package.