SALEM, Ore. — Oregon lawmakers on Wednesday approved Senate Bill 1507, a measure designed to reverse several recent federal tax changes at the state level in an effort to stabilize Oregon’s budget.
The bill “disconnects” Oregon’s tax code from portions of H.R. 1, a federal spending and tax package signed by Donald Trump. Because Oregon’s tax system is generally tied to federal law, the federal changes automatically reduced projected state revenues, creating a budget gap lawmakers said required action.
The state’s Legislative Revenue Office estimates the bill will generate approximately $311 million in additional revenue during the current biennium. Democratic leaders say the funding is necessary to maintain support for schools and core government services.
What the Bill Does
Senate Bill 1507 reverses three federal tax provisions that would otherwise apply to Oregon taxpayers and businesses:
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Car loan interest deduction: The bill eliminates a new federal deduction allowing up to $10,000 in car loan interest to be written off for qualifying vehicles purchased in 2025 and assembled in the United States. The federal deduction phases out for single filers earning more than $100,000 and joint filers earning more than $200,000.
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Business equipment expensing: It blocks businesses from immediately deducting the full cost of new equipment and machinery purchases. Instead, companies must spread those deductions over multiple years, increasing near-term state tax collections.
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Qualified stock tax advantages: The measure removes certain tax benefits tied to qualified stock transactions included in the federal package.
The legislation also expands Oregon’s earned income tax credit for low-income residents and creates a targeted tax subsidy aimed at encouraging job creation.
Chief sponsor Nancy Nathanson, D-Eugene, said lawmakers were responding to federal changes that altered Oregon tax policy without state approval.
“When Congress passed H.R. 1, named the ‘Big Beautiful Bill,’ Oregon tax policy was changed, but without our vote,” Nathanson said on the House floor.
Supporters: Protecting Core Services
Democrats argue the bill is a technical correction rather than a tax increase, saying it prevents unintended cuts to essential services.
“We have schools that need to be open and roads that need to function. We have fire and police that need to respond. Government costs money,” said Paul Evans, D-Monmouth.
Gov. Tina Kotek voiced strong support, saying the measure is central to maintaining funding for schools, universities and community colleges.
“The only way the Legislature is planning right now to maintain funding for our schools and our universities and community colleges is because of the disconnect bill,” Kotek said.
She added that the additional revenue, along with modest spending reductions, should limit overall state budget cuts to about 1%, avoiding deeper reductions of 2.5% to 5% that had been under consideration.
Republicans: A Tax Increase
Republicans opposed the bill, arguing it effectively raises taxes during a period of economic uncertainty and cancels relief families and businesses expected under federal law.
“By voting for Senate Bill 1507, you’re taking away some small business lifelines,” said Bobby Levy, R-Echo.
House Republican Leader Lucetta Elmer said Democrats were increasing Oregon’s already high tax burden while other states have reduced income taxes.
Rep. Dwayne Yunker, R-Grants Pass, criticized the move as rejecting federal tax relief instead of reducing spending.
What Happens Next
The bill now heads to Kotek, who has five days to sign or veto it while lawmakers remain in session. If signed, the changes would take effect this tax year and play a key role in closing the state’s current budget gap.
Possible Referendum
Even if enacted, the law could face a statewide vote.
Rep. Ed Diehl, R-Stayton, announced plans to pursue a referendum targeting key tax provisions in Senate Bill 1507, saying voters should decide whether the changes stand.
Under Oregon law, supporters of a referendum would have 90 days after the bill becomes law to gather enough valid signatures to qualify for the ballot. If successful, the law would be suspended until voters make a final decision in a statewide election.
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