SALEM — Oregonians generally could pay more in state income taxes under the new federal tax reform plan unveiled Thursday by U.S. House Republicans.
The plan faces uncertain prospects, but one proposed change could disproportionately affect Oregonians: its provision largely eliminating federal deductions for state and local income and sales taxes.
For Oregonians, who pay income taxes that are high compared to other states, doing away with most of that deduction could mean higher federal taxes, because there would be more money to tax.
A comparison of personal income tax rates by the Federation of Tax Administrators ranked Oregon with the second highest tax rate, 9.9 percent, behind California.
In 2015, Oregonians deducted about 2.5 billion of that was in property taxes.
Under the GOP plan, taxpayers could still deduct property taxes, but the deduction would be limited to 100 decrease in your federal taxes, that’s 924 million, Warner said. If federal taxes Oregonians pay are lower, that number could shrink too.
But the proposed changes to deductions may not necessarily mean higher taxes altogether. The bill also proposes a broad range of adjustments to federal taxes, such as increases in the standard deduction and the child tax credit.
What you pay will depend on a number of factors, including how much you make, where you live, whether you itemize your deductions or opt for the standard deduction, and whether you are planning to buy a new home.
The plan also shrinks the number of individual income tax brackets from seven to four.
Here are some of the other proposed changes in the plan, which is being billed as
The “Tax Cuts and Jobs Act” would also:
• Create a new 25 percent tax rate for pass-through businesses, such as sole proprietorships, partnerships and S corporations.
• Reduce the corporate tax rate from 35 percent to 20 percent.
• Eliminate the estate tax after six years.
• Reduce the loan cap on the home mortgage interest deduction from 500,000, and eliminate the benefit altogether for second homes. The bill preserves the $1 million cap for existing mortgages.
That could affect those who own more than one property and people who buy homes in Oregon’s booming metro areas, where home prices are higher, Warner said.
“I think we’ll see some adjustments as the process goes on,” Warner said.
Oregon relies heavily on the state income tax for its revenue; the impact on state and local deductions and on bonding in the plan was roundly criticized Thursday by State Treasurer Tobias Read, a Democrat.
Read’s office said in a press release that the plan would also cut access to tax-free bonds that are used to finance affordable housing and other economic development projects in Oregon.