- Associated Press - Friday, February 23, 2018

SALEM, Ore. (AP) - A controversial tax plan that would disconnect part of the state’s tax code from federal rules advanced in the Oregon Legislature Friday, heading toward a vote in the House.

Legislators in the state Senate voted 16-13 to move the bill, which would also create a special process for high-earning Oregonians to avoid a cap imposed last year’s federal tax overhaul.

After the vote, Sen. Brian Boquist, a vocal opponent of the measure, said he intended to sue to block the measure. The Republican Boquist had earlier said a simple majority vote would violate state requirements for a three-fifths majority on tax increases.

Democratic legislators called it incorrect to characterize the bill as an increase. “No small business, no individual, will pay a higher tax rate next year with this bill passing, than they did this year,” said Sen. Rod Monroe.

Instead of raising state taxes, the bill would block a new federal deduction - on a type of income called pass-through income - from automatically lowering how much Oregonians owe the state.

Because Oregon uses figures from residents’ federal tax forms to calculate state taxes, changes to federal law automatically affect how much state taxes Oregonians pay. The bill would leave that system in place, but would block one new deduction created in the 2017 Tax Cuts and Jobs Act from being used to calculate state taxes. As a result, federal taxes on that type of income would go down for some residents, but their state taxes would not.

The bill would also create an auction system to allow high earners to circumvent the $10,000 maximum deduction for state taxes created as part of the federal overhaul. Under the system, high earners would be able to buy credits for the portion of their taxes over the limit, with the proceeds going to the Oregon Opportunity Grant Fund and counting as charitable contributions on their federal taxes.

The credits would be distributed through a competitive auction held by the state.

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