SALEM, Ore. (Feb. 17, 2026) — The Oregon Senate on Monday passed a sweeping tax measure projected to generate $311 million for the state by severing parts of Oregon’s tax code from changes made in a recent federal spending package endorsed by Donald Trump.
Senate Bill 1507 eliminates three tax breaks included in H.R. 1 — a federal spending package approved by Congress — while expanding the state’s Earned Income Tax Credit and creating a new jobs-based tax credit for certain Oregon businesses.
Because Oregon’s tax code is tied to federal taxable income, changes enacted at the federal level automatically flow through to state income taxes unless lawmakers act to disconnect from them. Supporters said the legislation was necessary to prevent revenue losses to the state budget.
The legislative revenue office estimates the bill will bring in $311 million during the current biennium. Even if approved by both chambers, lawmakers still face a roughly $350 million budget shortfall to close before the short session ends.
“This bill is a practical, balanced, and focused measure intended to make Oregon’s economy work for the people who live and work here,” said Sen. Anthony Broadman, a Bend Democrat who carried the legislation.
Under the bill, Oregon would no longer mirror three federal tax provisions:
A tax write-off for up to $10,000 in car loan interest for vehicles purchased in 2025 and assembled in the United States. The federal deduction phased out after $100,000 in taxable income for single filers and $200,000 for joint filers. A provision allowing businesses to fully write off the cost of new equipment and machinery in one year rather than depreciating those costs over multiple years. Certain tax exceptions for qualified stock transactions.
By decoupling from those provisions, Oregon would collect income taxes on amounts that would otherwise be deducted under federal law.
The legislation also expands the state’s Earned Income Tax Credit. The credit increases from 9% to 14% of the federal credit for individual filers and from 12% to 17% for filers with a child under age 3. Lawmakers said the change applies to about 200,000 households. Democrats described it as the largest increase to the credit in state history, benefiting more than 500,000 Oregonians, roughly half of whom are children.
In addition, the bill creates a new $25 million Jobs Tax Credit for businesses that demonstrate a net increase in good-paying jobs in Oregon. The proposal also reaffirms that tips and overtime pay will not be taxed under state law.
Supporters framed the measure as a way to protect funding for health care, education and public safety.
“For Oregon to prosper despite the reckless economic and budget policies of the Trump administration, we have to both support our communities and grow Oregon’s economy,” Broadman, who chairs the Senate Finance and Revenue Committee, said. “This measure achieves both purposes.”
Senate Majority Leader Kayse Jama, D-Portland, said constituents are focused on affordability and access to essential services.
“When I meet with my constituents, they don’t ask for more corporate tax giveaways or loopholes,” Jama said. “They are asking me to make sure they can access affordable health care and that their children can access quality K-12 education.”
Republicans sharply criticized the measure, calling it a tax increase that will make Oregon less competitive.
“The revenue statement is the revenue statement, and the revenue statement clearly says that this is a tax increase on Oregonians,” said Senate Minority Leader Bruce Starr.
Sen. Christine Drazan, R-Canby, said the state should not raise taxes on job creators.
“I want a state where families are stable and parents can provide for their children. The way we achieve that is not by raising taxes on the people who create jobs,” Drazan said. “Businesses testified clearly that this proposal will make Oregon less competitive.”
Republicans pointed to economic indicators they said underscore the state’s challenges, including a 25% jump in business bankruptcies in 2025 to their highest level since 2013, a 33% increase in the business tax burden between 2019 and 2023, and a drop of 17 places in CNBC’s “Top States for Business” rankings over two years.
Sen. Mike McLane, R-Powell Butte, who carried a Republican-backed alternative that failed on party lines, said the bill would disconnect Oregon from federal provisions designed to spur investment.
“Senate Bill 1507 disconnects Oregon from key parts of the federal tax code that help businesses invest, expand, and hire more workers,” McLane said. “Whether we like it or not, we are competing with Idaho, Arizona, Texas, and other states for jobs and investment, and Oregon must do better.”
The Republican alternative would have kept Oregon aligned with federal tax law, preserved the car loan interest deduction and accelerated depreciation for equipment purchases, and expanded the Earned Income Tax Credit without eliminating the federal tax breaks.
All Senate Democrats voted for the measure except Sen. Mark Meek, D-Clackamas County. All Republicans opposed it.
The bill now heads to the Oregon House of Representatives for consideration.
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