Oregon plans $1.6 billion personal kicker while economic clouds gather on horizon
The September Oregon economic report pegged the personal kicker tax refund at a record $1.6 billion.
Oregon’s economy has continued to boom, racing ahead of forecasts, but the recession warning signs are getting more urgent, economists told legislators Wednesday. Oregon tax revenue is heavily dependent on personal income taxes. In good times, collections boom, but when a recession hits, the drop can be sharp.
The September 2019 Economic and Revenue Outlook again revised projected resources up from the previous quarterly report. Net General Fund and lottery income was up $2.6 billion from the 2017 close of session estimate of $21.4 billion, according to the Legislative Revenue Office.
State Economist Mark McMullen and Senior Economist Josh Lehner presented the report Wednesday to a joint meeting of the interim House Revenue Committee and the Senate Finance and Revenue Committee.
Oregon’s economy is chugging along, with the near-term forecast mostly positive but showing a slowing in revenue growth. Oregon’s growing reserves, including the Education Stability Fund and Rainy Day Fund, are projected at 17% of the General Fund, providing at least one biennium of cushion in case of a downturn.
McMullen spent much of the hearing talking about the U.S. economy and possible recession indicators, including bond market and manufacturing data.
“The U.S. expansion is starting to show some cracks,” McMullen said.
McMullen and Lehner explained that recessions tend to be partly psychologically triggered, with people becoming increasingly more concerned until some sort of shock tips the country into recession.
“Consumers will continue to spend and continue to do well until given a reason to be scared,” Lehner told legislators.
McMullen said overall Oregon is growing faster than the underlying data would suggest and it's not sustainable.
The September report sets the kicker. Oregon law requires the state to return the money to taxpayers when collections exceed the two-year budget cycle forecasts by more than 2%. That pencils out to a $1.6 billion personal kicker and a $676 million corporate kicker. Although the personal kicker is a record in terms of dollars, it ranks third as a percentage of taxpayer liability.
Taxpayers will receive their share of the personal kicker next year through a credit on their 2019 tax returns, a little more than 15% of their liability. The corporate kicker is dedicated to K-12 education.
During the 2019 legislative session, Democratic legislators and Gov. Kate Brown suggested using the expected kicker windfall to address statewide issues including the Public Employees Retirement System debt or to put it in a rainy day fund, but nothing came of it legislatively. Republican leaders opposed tapping the kicker, and any action with the kicker would have required GOP votes.
- Jake Arnold, OSBA
jarnold@osba.org