Oregon’s state economists delivered another astonishing revenue forecast Wednesday, with surging tax revenues now predicted to deliver a record kicker rebate of $3 billion to taxpayers in 2024.
Economist Mark McMullen called the latest revenue outlook for the state’s two-year budget cycle “nothing short of shocking.” The size of the kicker is likely to fluctuate before it is finalized in summer 2023.
“We really never could have imagined the sort of stuff we’ve seen in the last couple months,” McMullen said. Oregon’s blockbuster income tax receipts this filing season mean a $2.3 billion increase in general fund revenue compared with just three months ago, but the state’s unique kicker tax rebate would return much of the money to taxpayers. The expected size of the kicker tripled since February.
“This season Oregon and all the other income tax states saw an unprecedented flood of revenues at the filing deadline,” McMullen said. “What that’s left us with is unprecedented balances for the current biennium. But those are largely, but not completely, offset by the larger kicker.”
The upshot is $427 million more for state lawmakers to spend in the 2023-2025 budget, but only if the Legislature holds onto the money until then. Oregon’s current two-year general fund and lottery budget is $29.3 billion, according to the Legislative Fiscal Office. Lawmakers and Gov. Kate Brown have so far given no indication they want to approve additional spending this year, which would require a special session.
Rising wages in the tight labor market are helping to drive the revenue increases, but so is taxpayer behavior including wealthy individuals selling assets that yield capital gains, economists said. McMullen said the “end of 2021 was a great time to cash things in” and one of the questions going forward will be how much that slows down.
Oregon’s unique kicker rebate is triggered when tax revenues for a biennium come in more than 2% above economists’ forecast from the start of the budget cycle, in this case the May 2021 revenue forecast. The state must return the full amount above the forecast to taxpayers. Personal income taxpayers already received a kicker rebate totaling $1.9 billion when they filed their returns this year. Taxpayers will get their share of the kicker forecasted Wednesday to be $3 billion in 2024 in the form of a tax credit or tax refund when they file their 2023 income taxes that spring.
While inflation has contributed to the fast-growing tax revenues, it is eating into the state’s purchasing power to deliver services for Oregonians.
“Obviously the cost of providing public services is going up rapidly,” McMullen said.
McMullen noted that Oregon lawmakers have insulated an increasing share of state revenues from the kicker over the last decade, by dedicating new consumption taxes to specific uses rather than the general fund. An example is the new business tax passed in 2019 to boost education spending, which generates approximately $1 billion annually.
— Hillary Borrud