Talk about a budget bombshell! Oregon’s finances just took an $888 million hit, and a new forecast points straight to Trump’s ‘Big Beautiful Bill.’ What does this mean for state services and the economy? Get the full breakdown and see why lawmakers are already at odds. Your state budget just got a whole lot more complicated.
The state of Oregon is reeling from a significant financial blow, as a new revenue forecast reveals an $888 million reduction to its budget, largely attributed to President Donald Trump’s “Big Beautiful Bill.” This unexpected fiscal shift has dramatically altered the state’s financial outlook, transforming a previously projected surplus into a considerable deficit for the upcoming biennium. The implications of this federal policy on state-level finances are now a major concern for Oregon’s leadership and its citizens, impacting the overall Oregon budget.
According to the latest data from the Oregon Department of Administrative Services (DAS), the state’s General Fund revenue for the 2025-27 biennium is expected to decrease by a staggering $888.2 million. While minor state-level adjustments, such as a slight increase in projected business tax revenue, offer a small offset, the net impact remains a substantial loss of approximately $621 million in general fund dollars. This significant reduction is the primary driver behind the revised 2025-27 biennium economic forecast, which now projects a $373 million general fund deficit instead of a surplus, highlighting the critical state of state revenue.
The immediate and precise impact of the Trump Tax Bill on Oregon’s budget stems from the state’s unique tax calculation methodology. Oregon is one of only five states that directly utilize the Federal Taxable Income (FTI) figure as a baseline for determining its own state taxable income rules. Consequently, any modifications made at the federal level to how the FTI is calculated, as introduced by the Trump bill (formally known as HR 1), inherently translate into direct changes in Oregon’s anticipated state revenue, demonstrating a clear legislative impact.
A prime example of this direct correlation is a new provision within HR 1 that allows taxpayers to deduct $12,500 for overtime pay from their federal taxable income. Because of Oregon’s reliance on the FTI, this federal deduction automatically applies to state taxable income as well. This single change alone is projected to account for a substantial $221 million of the lost Oregon general fund dollars for the 2025-27 period, illustrating the profound ripple effect of federal legislative impact on state budgets and fiscal policy.
Beyond the specific impact of the federal tax changes, DAS indicates that Oregon’s broader financial forecast largely aligns with previous reports, albeit with a short-term outlook that was already less than optimistic. The state’s economic performance is intimately tied to the national economy, which is currently experiencing a slowdown. This decelerating trend is anticipated to persist, with national GDP growth expected to decline to 1% by year-end, elevating the risk of a recession, which forecasters currently place at a 35% probability, influencing the economic forecast.
Recent months have seen Oregon grapple with severe declines across several key sectors, including manufacturing, construction, financial activities, wholesale trade, private education, and information. These contractions raise the specter of “sector-specific recessions,” even if the national economy manages to avert a full-blown downturn. However, the overall economic forecast remains relatively stable due to mitigating factors such as higher capital gains tax revenue, driven by strong financial markets, and reduced uncertainty regarding federal tariffs and potential tax reforms, affecting the Oregon budget.
Looking at the recent budget cycle, the conclusion of the 2023-25 period confirms that Oregonians will receive a “kicker” refund when filing their 2025 taxes, though slightly smaller than earlier projections. Income tax revenue for the biennium came in approximately $229 million lower than anticipated, resulting in a final surplus of $1.4 billion earmarked for taxpayers. It’s important to note that the Trump bill has no retroactive effect on this period, nor will it directly influence future kicker calculations, as these are based on total state revenue rather than the general fund balance, a key aspect of fiscal policy.
The release of the economic forecast promptly ignited a political firestorm among Oregon’s elected officials. State Democrats swiftly pointed fingers at the Trump administration and federal Republicans, attributing the budget shortfall to their policies. Governor Tina Kotek asserted that “More Oregon families are experiencing tougher financial situations — not by chance, but because of the economic uncertainty coming straight from the Trump Administration.” This sentiment was echoed by other Democratic leaders, who highlighted the nearly $900 million hole created by the federal Trump Tax Bill.
Conversely, state Republicans placed the blame squarely on state Democrats, arguing that Oregon’s economic woes stem from local policy choices rather than federal actions. Senate Republican Leader Daniel Bonham emphasized areas where Oregon’s job growth lagged the national economy, while House Republican Leader Christine Drazan urged citizens not to believe those who claim the forecast is “someone else’s fault.” Republicans also directed criticism towards the upcoming special legislative session, intended to address a funding crisis at the Oregon Department of Transportation, viewing it as another symptom of state-level mismanagement and poor fiscal policy impacting the Oregon budget.
