Astoria, OR – Oregon’s economic outlook remains relatively stable despite a series of chaotic federal developments, including potential tax changes, tariffs, and mass firings of federal employees. On Wednesday, state economists reported that the state’s budget will have about $38.2 billion to allocate for the next two-year cycle, which is an increase of $350 million from the previous forecast issued in November.
Carl Riccadonna, Oregon’s chief economist, and senior economist Michael Kennedy, emphasized that while this additional funding is a positive sign, caution is still necessary as lawmakers prepare for potential economic challenges linked to federal policy shifts. In particular, the looming uncertainty around federal tariffs and the proposed $2 trillion in unspecified spending cuts, recently voted on by congressional Republicans, could have significant ripple effects on Oregon’s economy.
“While the forecast shows a slight increase in available resources for the coming years, it is crucial that we continue to approach the budget with caution,” said House Speaker Julie Fahey, D-Eugene. “We must remain prepared for any economic headwinds that may be created by actions taken at the federal level, including potential cuts to crucial federal programs like Medicaid.”
Economists have warned that Oregon’s economy could be particularly vulnerable to changes in trade policies, given the state’s reliance on manufacturing and trade, especially with Asia. Riccadonna noted that previous trade disruptions, such as the tariffs implemented by President Donald Trump in 2018, had a slowing effect on Oregon’s economic growth. However, the impact of those tariffs was softened by the fiscal stimulus from the Tax Cuts and Jobs Act.
“As we look ahead, we may see a similar dynamic,” Riccadonna said during a briefing with reporters. “If the expected continuation of Trump-era tax cuts and potential corporate tax reductions take shape, they could provide an economic boost that may offset some of the negative effects stemming from trade disruptions.”
The state’s economists have also cautioned that it is too early to assess the full impact of the recent federal layoffs, which could contribute to a rise in unemployment claims. Riccadonna explained that the data reflecting these layoffs would likely begin to appear in state-level economic reports around the first two weeks of March, as many of the cuts occurred around President’s Day weekend.
The additional $350 million in available funds for the state budget is largely attributed to higher-than-expected income tax revenues, driven by rising wages over the next two years. However, this increase is partially offset by additional state spending to address costs related to wildfires and late tax refunds. Oregon also paid out a record $5.6 billion in kicker refunds last year, a result of the state collecting more tax revenue than initially forecasted.
As Riccadonna settles into his role as chief economist, one of his primary tasks has been to improve the accuracy of the state’s economic forecasts in order to reduce the size of future kicker payouts. However, despite these efforts, a large kicker payment is still expected for 2026, with the latest forecast estimating it at $1.726 billion, slightly less than the $1.8 billion predicted in November. High-income earners, who contribute more in taxes, will receive a larger share of the kicker refund.
Oregon lawmakers will use the next economic forecast, expected in late April, to craft the state’s budget for the upcoming two years. This forecast will offer a more complete picture of how federal actions might influence Oregon’s economic outlook, providing lawmakers with crucial data to guide their budget decisions.
