May 15, 1999

The Consequences of Increasing Oregon’s Deduction for Federal Income Taxes Paid


Oregonians will soon be considering whether to allow taxpayers to deduct more of their federal income taxes from the Oregon personal income tax. Under current law, Oregon taxpayers can deduct up to $3,000 of federal personal income tax on their Oregon tax returns. One proposed change pending before the Legislative Assembly would increase this limit from $3,000 to $10,000. A second proposal, currently circulating as an initiative, would eliminate the cap altogether, allowing Oregon taxpayers to deduct all of their federal personal income tax. The annual revenue loss from these proposals would exceed $200 million and $500 million, respectively.

This paper discusses the distributional consequences of these proposals for Oregon residents, the arguments being made in favor of the proposals, and the experiences of other states.

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