Commentary: A partial decoupling from federal tax law

Published 6:14 am Friday, February 13, 2026

The federal government and the state of Oregon have a disconnect these days on everything from health care to energy policy to, obviously, immigration.

But it boils down to specifics in the case of Oregon Senate Bill 1507, which concerns income taxes, and that requires some explanation — not to mention swift consideration, this being the income tax-paying part of the year.

Where you land on this bill probably relates almost exactly to what you thought of the “big beautiful bill” (House Resolution 1) passed last year by the Republican-majority Congress, and backed by President Donald Trump.

But details matter. Even in Oregon, there’ll be no absolute linking or disconnect; more likely, Oregon will choose among the federal provisions to accept or reject. That calls for some study, rather than a binary selection of which team to support.

The Oregon way

Most years, states that impose an income tax match the rules concerning the federal income tax closely with their own. This usually makes tax preparation and business planning easier. Some states, including Oregon, have a default rule that the state follows the federal model unless the Legislature decides otherwise. The Legislature has done that in the past, as in 2018.

Idaho is one of the states running the other way: There, conformance with the federal rules needs specific legislative approval, which ordinarily is given. This year, that approval is roaring along in that state’s legislature, partly because the conformance aligns the Idaho Legislature with national Republican policy.

The states split widely (mainly along red and blue divider lines) on how they’re responding to the income tax issue and Oregon, naturally, has a story of its own.

The recent federal tax law is viewed overall negatively in Oregon, but that’s not universal. A Senate Finance and Revenue Committee hearing on Feb. 4 exploring “decoupling” the state from many (not all) of the federal provisions, drew an array of opinions within 495 submitted opinions. A slight majority of them opposed the bill — that is, favored keeping last year’s congressional tax bill as a model for Oregon’s state income tax rules.

Those critics included some who seemed not to understand the bill; some said they opposed imposition of a sales tax, which isn’t what the bill is about. Others simply proclaimed themselves in opposition to taxes.

But some critics were more specific. An example came from Rep. E. Werner Reschke, R-Malin: “Since the passage of H.R. 1 by Congress in July of 2025, Oregonians have been experiencing the benefits from this economic stimulus program. No longer being taxed on tips, overtime or interest on car loans is a great relief for many Oregonians — especially those finding it difficult to make ends meet. Moreover, H.R. 1’s bonus and R&D same-year expensing/depreciation is an incredibly helpful incentive for businesses to invest both their people and their capital in Oregon. Disconnecting from such important parts of the federal tax code would put Oregon at a serious disadvantage compared to other states.”

The counterargument starts with the loss of state revenue under the new federal provisions. The exact number remains uncertain, but it seems likely to be significant.

Devils in the details

Still, not all of the federal bill is being targeted for decoupling. The battle ahead lies within the details: Where tax levels or deductions or other rules should be set, for different types of income.

The federal bill, for example, generally offers a new tax exemption for tip income, and whether you can qualify for it appears to depend on whether you fit into one of 68 (that number may be in flux) “treasury tipped occupation codes.” The categories set in 2024 include unexpected categories such as self-enrichment teachers, pet caretakers and club dancers, though there’s been talk of creative redefinition of “tipping” that could add some higher-income occupations too. Regardless, the tip rule change hasn’t drawn a lot of opposition.

The core of the pro-1507 argument is laid out by the Oregon Center for Public Policy, which contended the federal law “has left Oregon’s financial future on the brink, all to give tax breaks disproportionately to the richest households.” It specified three targets for decoupling.

One is the qualified small business stock exclusion, which the OCPP described as “giving early investors, notably venture capitalists, special tax breaks on their shares of certain corporations.” It’s aimed at higher-income investors, not a broad spectrum of Oregon taxpayers.

Then there’s the bonus depreciation, “a windfall for corporations, subsidizing investments they would likely do anyway. Businesses typically depreciate their purchases over time, reflecting the loss of value due to wear and tear, but bonus depreciation allows them to do it right away, creating greater opportunities for corporate tax avoidance.” The Oregon Legislature might have some incentive to go along with this if the investments were Oregon-specific, but they aren’t.

A third is the Auto Loan Interest Deduction, which does help with the price of buying a car — but only a new car, since less-expensive used cars aren’t covered.

There’s a good chance the OCPP will get a good deal of what it is seeking. But keep watch on the details, not an imagined bottom line of whether Oregon disconnects or not. It’s not all or nothing; it’s pick and choose.

Randy Stapilus has researched and written about Northwest politics and issues since 1976 for a long list of newspapers and other publications. A former newspaper reporter and editor, and more recently an author and book publisher, he lives in Carlton. This was originally published by Oregon Capital Chronicle.