By ALEX BAUMHARDT/Oregon Capital Chronicle
SALEM — Like putting on an old winter coat and pulling an unexpected $20 bill from the pocket, or getting a birthday check that covers a surprise bill, the $373 million budget deficit Oregon faced just yesterday is being shrunk, for now, by what state economists call “found money.”
State lawmakers will now be contending with a $63 million budget deficit in the two-year budget cycle that ends in June 2027, about 83% smaller than the reality they faced just days ago.
That’s in large part because the state in recent weeks received adjusted corporate income tax receipts from several large Oregon corporations, and a few other state revenue sources have seen modest improvements in recent months.
Collectively, these streams have brought in an additional $309.5 million since the state’s last revenue forecast in August, when a $472 million budget surplus turned into a $373 million deficit following the passage of the federal GOP tax and spending megabill during the summer.
Oregon’s chief economist, Carl Riccadonna, and senior economist, Michael Kennedy, presented the news and the state’s latest quarterly economic forecast Wednesday to House and Senate revenue committees and previewed some of their findings on a call with reporters Tuesday evening.
“Just think how often you hear a company is restating earnings, right?” Riccadonna said, explaining the volatility and unpredictability of corporate income taxes. “The auditors find something. The accountants find something. They restate earnings. So, then you go back and refile your tax returns. And all these corporations have different fiscal years as well.”
Kennedy made clear that getting more money than expected from adjusted corporate income taxes — taxes collected in previous years — says nothing about the health of the economy or its relationship to corporate profits, describing it as “a separate part of the ledger.”
The state’s budget outlook will change over the course of six more revenue forecasts between now and the next two-year budget cycle, which begins in July 2027, but Riccadonna said he expects a moderate pickup in the economy in 2026 due to the Federal Reserve likely continuing to lower interest rates.
“While this forecast reflects the resilience of Oregon’s overall economy, my focus remains on the people who are struggling right now,” Gov. Tina Kotek said in a statment. “We must hold the line against President Trump’s attacks on working families through cuts to food assistance and health care. We must continue to lean in on what’s working to address the cost of living across the state. And Oregon’s long-term prosperity won’t happen by luck, so we must come together intentionally to ensure we create jobs and chart a path for a stronger economy.”
Republican leaders in the state House and Senate said the report signals that the Legislature should not pass new taxes.
“Despite the improvement in Oregon’s financial standing, a deficit of any size is a problem, and Oregonians are feeling the pinch,” said Rep. Lucetta Elmer, of McMinnville, leader of the House Republicans, in a statement. “Oregon’s rising unemployment numbers and high taxes are harming families and forcing businesses to leave our state. If we want to see our budget grow, we must cut taxes and create an economic climate where businesses can thrive and grow — not fear loss and decline.”
Flying blind
State and federal economists have said the latest economic outlook should be viewed with caution — it’s complicated by a significant lack of employment data from the federal Bureau of Labor Statistics since the record 43-day government shutdown began Oct. 1. The agency will put out its September jobs data on Thursday, and jobs data for October and November should be available by early or mid-December.
“They’re called vital economic statistics for a reason. They are vital to the forecasting process,” Riccadonna said.
Jobs reports and reports on private sector business growth going into September indicated sluggish job growth and persistent tariff-induced inflation.
While state economists believe Oregon has lost about 18,000 jobs since the same quarter last year — less grim than the 25,000 job losses between June, July and August of 2024 and the same period in 2025 — “we are flying blind to a degree,” Riccadonna said. Though hiring has slowed in certain sectors, many people are earning higher wages, he added.
Other indicators the state uses in the absence of federal data, such as looking at monthly personal income tax collections, show economic stress that’s related to slow, not stalled, jobs growth, he explained.
“This month’s federal government shutdown impacted our state in many ways: missed benefits, furloughed workers, closed national parks, canceled flights, and more. But it also delayed vital statistics that we depend on for revenue forecasts. We should take this forecast with a grain of salt,” House Majority leader Rep. Ben Bowman, D-Tigard, in a statement.
K-shaped economy
The economy, previously seen to be losing speed, has seen some reacceleration, Riccadonna said, indicating “economic resilience” to tariff-induced inflation. Wages on average have risen slightly, in some cases due to inflation, and the stock market hit several records this year on the back of a handful of technology companies, though the stock market and the economy should not be conflated, Kennedy has warned.
At the end of 2024, the national economy was growing at about 2.5%. It has since slowed to about 1.6% — slightly above the 1% speed that signals a recession. Forecasters project that growth will reach about 1.9% next year.
Both state economists and the Federal Reserve say that growth makes a recession less likely, but risks are still higher than in a typical year.
Riccadonna acknowledged that Oregonians are experiencing the current economy differently based on their income bracket, creating a K-shaped economy where upper income-earners see their money grow while low-income households see theirs fall. This is in stark contrast to the post-pandemic economy that appeared to be lifting all boats, Riccadonna said.
“There is very much a two-track economy at the moment,” he said.
The Supreme Court’s impending decision on the legality of President Donald Trump’s tariff policy could “with the stroke of a pen” completely change the U.S. and Oregon’s economic horizon in the first quarter of 2026, Riccadonna said. Because a tariff is a tax, and the average effective tariff rate under Trump’s policy is about 18%, if tariffs were dropped it would in essence be a big tax cut to currently tariffed goods.
While that’s good for consumers, without that tariff money, Congressional Republicans cannot pay for the billions of dollars of spending and tax cuts passed in their megabill this summer. The U.S. Treasury would need to borrow more money, causing ripple effects into global financial markets.
About 80% of those cuts were supposed to be paid for with tariff money.
- Oregon Capital Chronicle is a nonprofit Salem-based news service that focuses its reporting on Oregon state government, politics and policy.
That’s great news about the unexpected money from adjusted corporate income taxes. That said, I only want to say that tariff money gets around! About 90 million in the treasury from tariffs but the administration plans to use it to give middle and lower income people 2k each (not enough to cover that), help pay for the big, awful bill cuts and a list of other things. There must be magic involved somehow!