SALEM – Oregon Democrats' response to the new federal tax law passed the state House by a slim margin on Friday, with three Democrats voting "no."

With roughly a quarter billion dollars at stake, Democrats said the bill was necessary to protect budgets for education, health care and other critical programs. Republicans said the plan would hurt pass-through businesses by denying them a new state tax break they would receive automatically if the Legislature did nothing.

Senate Bill 1528 passed on a 32-28 vote, with Rep. Paul Evans of Monmouth, Rep. Janelle Bynum of Happy Valley and Rep. Caddy McKeown of Coos Bay joining Republicans to vote "no."

It passed the Senate last month, without a single Republican "yes" vote and with one Democratic "no."

It goes next to Gov. Kate Brown, who will decide whether to sign it into law. Brown's communications director, Chris Pair, declined on Friday to say whether Brown plans to sign it.

The most controversial part of the plan would ensure Oregon does not copy into state law a new federal tax deduction for so-called pass-through businesses. Owners of those businesses, which include partnerships and limited liability companies, pay personal income taxes on their earnings.

A 2013 state law allows them to pay lower tax rates than wage earners, so Democrats have argued they do not deserve a second tax cut. Since Oregon generally mimics federal tax, these businesses would automatically receive the new federal tax deduction unless lawmakers act.

Democrats have pointed out that if the state were to dole out another tax break to those businesses, most of the benefit would go to top earners: 80 percent would go to households with incomes over $1 million, according to Rep. Phil Barnhart.

"No one's tax bill will change if we pass this bill," said Barnhart, a Democrat from Eugene, during a floor speech. "However, if we do nothing, the financial future of our schools and those other critical services will be negatively impacted."

Republicans disagreed, claiming that the bill would take away a state tax break those businesses were on track to receive due to the state's connection to federal tax law. Rep. Julie Parrish, a Republican from West Linn, pointed out the pass-through business tax deduction would apply to a much larger group of taxpayers than the existing state break: nearly 200,000 filers, rather than approximately 20,000.

"Make no mistake, it is a tax increase on these businesses to not connect" to the new federal tax break, Parrish said on the House floor. Parrish, who spearheaded the opposition campaign on health care taxes voters approved in January, said Friday that she had not decided whether she would seek to overturn Senate Bill 1528 if it becomes law.

Democrats aren't the only ones to disagree with Parrish's claim that not honoring the federal deduction is a take hike for pass-through earners. The conservative-leaning Tax Foundation issued its verdict last month. "No business currently receives this deduction in Oregon," Nicole Kaeding, an economist with the Tax Foundation, wrote in an online article last month. "Preventing it from existing in the state doesn't cause a tax increase."

Sen. Brian Boquist, a Republican from Dallas, voted against the bill and has said he plans to sue the state based on the claim that the bill is a tax increase and should have required a supermajority vote to pass.

Although it has received less attention, Senate Bill 1528 also contains a strategy to help higher income Oregonians who face a new federal cap on the deduction for state taxes.

The House also passed a second tax bill Friday in response to the federal changes. Senate Bill 1529 was less controversial and passed on a 39-21 vote. It would fix a quirk in state law to make sure the state taxes money that multinational corporations bring back to the United States under the Republican tax overhaul.

House lawmakers want to put the anticipated $145 million windfall toward the long-term public pension shortfall. Since an earlier version of the bill would have socked the money away in the state rainy day fund, it must go back to the Senate for a final vote Saturday.

-- Hillary Borrud; Twitter: @hborrud; 503-294-4034