Oregon will see a two-year budget with a positive $472 million balance evaporate and turn into a $373 million deficit under the Trump administration’s tax and spending policies, economists told state lawmakers.
At the end of the Oregon legislative session in July, lawmakers set aside $472 million from the state’s general fund to help buffer against expected tax revenue losses in the next biennium caused by the Republican tax and spending cut law that President Donald Trump deemed the “One Big Beautiful Bill.”
That will cover just over half of the $888 million in revenue losses state economists expect that Oregon will endure in the next two years from the bill.
Oregon’s chief economist, Carl Riccadonna, and senior economist, Michael Kennedy, presented the news and the state’s quarterly economic forecast Wednesday to House and Senate revenue committees, and previewed some of their findings on a call with reporters Tuesday evening.
Those include a slightly increased risk of recession in the next 12 months and slowing economic growth from Trump’s tariffs on nearly all U.S. trading partners that have impacted the state and national labor market. The last time the two met with lawmakers was in May to present a quarterly revenue forecast facing uncertainty over Trump’s tariff policies, which were changing by the day.
“Last time I was here saying, ‘Well, we’ve created 25,000 jobs over the last year.’ Now I have to share the unfortunate news that we’ve lost 25,000 jobs over the last year,” Riccadonna said. “The situation is worse for manufacturing, trade, transportation, professional and business services, construction, categories that you would expect to bear the brunt of an escalating trade tension situation.”
Oregon faces an overall $15 billion shortfall in federal funding in the next several years due to the Republican budget cuts to government-sponsored health insurance, food assistance and education programs, and other services, according to an analysis from Gov. Tina Kotek’s Office.
“With President Trump and Congressional Republicans cutting $15 billion dollars from essential services over the next six years, and being responsible for reducing state funding right now by an additional $888 million, the damage is here,” Kotek said in a statement. “More Oregon families are experiencing tougher financial situations — not by chance, but because of the economic uncertainty coming straight from the Trump Administration.”
Senate Minority Leader Daniel Bonham, R-The Dalles, disagreed with the economists findings that federal policies are the cause of Oregon’s bleak revenue forecast.
“Instead of focusing on Oregon’s problems, today’s forecast spent more time on tariffs and Washington politics,” he said in a statement. “But the truth is, our challenges are not D.C.-grown – they’re Oregon-grown. We are losing ground because of decisions made right here at home. Failed housing policy, hostile business regulations, struggling schools, and rising crime have all driven families and employers away. Tina Kotek and the Democrat supermajority have done this, one policy decision at a time.”
The “rolling reconnect” problem
Oregon’s state tax revenues are particularly sensitive to federal tax changes because Oregon’s tax code automatically replicates the federal code under a “rolling reconnect” policy. This means all of the Trump cuts on federal income and corporate taxes will apply to state income and corporate taxes, unless the state Legislature intervenes.
The biggest hits to Oregon’s revenues because of this policy would come from new federal rules removing taxes on some overtime hours and tips, and allowing businesses to deduct from their taxes some or all of the costs of qualifying machinery, equipment, property and other “depreciating assets” as well as research and development costs, Kennedy said.
The revenue forecast presented Wednesday is less affected by tariffs, which settled into a somewhat predictable state when they went into effect Aug. 7 for most of the U.S.’s trading partners, Riccadonna said. The average effective tariff rate in May was expected to be about 28%, and is now closer to 18% or 19% on most goods coming into the U.S.
Court cases, including one led by Oregon’s Attorney General Dan Rayfield, could upend them.
The tariffs — a de facto tax on American businesses and consumers — will continue to slow the state’s labor market through 2025, Riccadonna said, and as a result, the amount of income tax the state collects.
“We’ve had a loss of momentum in the labor market nationally. We’ve also seen that here in Oregon,” Riccadonna told reporters.
Economy slowing everywhere
The national economy is slowing and will continue to slow through the rest of the year, according to Riccadonna. At the end of 2024, the national economy was growing at about 2.5%. It has since slowed to about 2%, and forecasters project that it will drop to about 1% in the next year, sparking recession fears.
“Anytime I see the economy getting close to 1% on GDP growth terms, I become very nervous, and so we will be closely tracking the evolution,” Riccadonna told lawmakers.
National economists forecast a 35% likelihood of a recession in the next year, down from 40% in March, he said. In Oregon, he’s projected a 27% likelihood of a recession in the next 12 months, up from 25% in May. In a typical year, the risk is 10% to 15%.
“Oregon, while underperforming the national economy in recent quarters, has shown some resilience,” he said, saying the state’s economy has not slowed as quickly as some other states and nationally.
Among the data points the economists use to weigh the likelihood of recession for the state is “weight-mile tax” figures from the Oregon Department of Transportation, which gives them a sense of container truck traffic through the state. Riccadonna said that data does not indicate truck traffic has slowed.
They also look at the number of people filing for unemployment, which currently is not much higher than it has been in the last few years.
“So that’s not giving us a red flashing light,” Riccadonna said.
Some losses offset from capital gains
Kennedy said that once the economy moves on from the “shock of tariffs,” and begins responding to tax and interest rate cuts that take effect in 2026, it’s possible things could look up.
For now, some losses to income and corporate revenue are being offset by capital gains taxes paid by wealthy Americans selling stocks, bonds, real estate and other assets at record valuations, Kennedy said.
Financial markets are so far not reflecting the level of economic insecurity and instability around tariffs that the labor market is experiencing, and the S&P 500 today is at an all time high.
Instead, traders are encouraged by the likelihood of Federal Reserve Chair Jerome Powell cutting interest rates in September and later this year, Riccadonna said.
“I always caution that the stock market is not the economy. Nonetheless, it’s an important barometer of the economy, and with financial markets showing this robust performance, I think it’s an encouraging signal that we are not in a recession or on the cusp of recession,” Riccadonna told lawmakers.
By Alex Baumhardt of news partner Oregon Capital Chronicle
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