Oregon’s tax and lottery revenues continue to far outpace economists’ predictions, with the state now expected to take in $600 million more than forecasters predicted just three months ago.
Booming tax revenues from capital gains and businesses could push the state’s unique “kicker” tax rebate up by another $500 million, according to the latest quarterly forecast that economists presented to lawmakers on Wednesday. That would bring the total “kicker” rebate to $3.5 billion, which taxpayers would receive as a credit or refund on their 2023 taxes when they file in 2024.
“Boy, it looks like those top end folks really did realize a tremendous amount of income” in 2021, said economist Mark McMullen. He noted that unlike wage earners, people with capital gains income can control when they earn that income and many chose to take the income in 2021 because of market prices and a desire to minimize taxes, which some worried that Congress could raise.
Yet even as Oregon’s tax and other revenues greatly exceed expectations, McMullen and fellow economist Josh Lehner told lawmakers that Oregon’s economic outlook is unusually difficult to predict and that will make it extra challenging to accurately budget for state government in the coming years.
“Unfortunately, there’s a tremendous amount of uncertainty in the economic outlook heading into this next biennium,” McMullen said. The chance that the U.S. will enter a recession is “looking pretty close to a coin flip,” McMullen said.
As a result, McMullen and Lehner took the unusual step of preparing two economic and revenue forecasts: one based on the Federal Reserve successfully pulling off a “soft landing” that would rein in inflation without a recession, and a second scenario in which the state would enter a mild recession.
Under the specific type of recession that economists modeled, Oregon would still be on track to bring in more revenue than expected during the current budget cycle that ends in June 2023. But the surplus would be just $53 million higher than predicted just three months ago, rather than the $600 million revenue boost predicted under “soft landing” economic conditions.
The outlook for future budget cycles is gloomier, whether Oregon goes through a “soft landing” or mild recession. Without a recession, Oregon could still take in $700 million less in 2023-2025 compared with economists’ forecast last quarter. A mild recession could translate to $1.2 billion less in revenue in 2023-2025.
McMullen said that although roughly half of Americans believe the country is already recession, “the data doesn’t support that.” Americans’ actions so far contradict what they are telling pollsters, McMullen said, and so far both businesses and individuals continue to spend freely on goods and services.
— Hillary Borrud