Oregon taxpayers will get $1 billion back in 'kicker' rebate
SALEM — Oregonians are in line for a big personal income tax credit, in the form of Oregon's unique "kicker" rebate, when they file their taxes in 2020.
That's because the state has collected far more money during the past two years than was expected, state economists Mark McMullen and Josh Lehner said Wednesday, May 15. Personal income tax collections during the first quarter of the year were the highest on record.
In most states, any extra revenue goes to the state legislature to spend. But because Oregon law requires the stake to "kick" much of its unanticipated money back to taxpayers, the state gets to keep only a portion.
"Relative to our counterparts in other states, this is a difficult day for us," McMullen said. "This has been a really nationwide phenomenon in terms of the revenue surge, but to all our counterparts, that's a happy story. … Unfortunately, with our unique kicker law, that's not the case."
If the state collects 2% more in personal income taxes than what state economists predicted two years ago, it triggers the kicker rebate, which means that extra money goes back to Oregonians instead of being spent by the state government. The state smashed through that threshold by more than $1 billion.
Oregon taxpayers will get back about $1.4 billion, nearly double what economists predicted just a few months ago.
That would be the largest kicker in state history, according to McMullen, dwarfing the $463 million kicker that taxpayers got back in 2018.
Right now, McMullen said, it looks like the median kicker rebate will be about $338. For the state's top earners, it will be close to $14,000.
Republicans leapt to the defense of the kicker, warning Democrats against dipping into it.
"This constitutionally mandated check on excessive taxation must be honored and not raided for pet projects or to grow the bureaucracy in Salem," said House Minority Leader Carl Wilson, R-Grants Pass, in a statement.
This is the last revenue forecast before the June 30 deadline for lawmakers to pass a state budget. It's important because it tells lawmakers how much money they can spend in the next two years.
Legislative budget-writers have to produce a balanced budget that doesn't spend more money than the state takes in.
"This will be the forecast that sets the stage for the budget for '19 (to) '21," said Chris Allanach, legislative revenue officer.
On Wednesday, key Senate Democrats signaled they will take a measured approach to what Sen. Mark Hass, D-Beaverton, described as "a historic windfall."
"It should go to one of the education stability fund, rainy day fund, PERS fund — whatever one of those long-term funds," Hass said. "I think we're going to sock it away."
Senate Majority Leader Ginny Burdick, D-Portland, and Sen. Chuck Riley, D-Hillsboro, said the economic good times won't last.
"Today's forecast is great news regarding the budget situation, but history shows us that the spike will not last," Burdick said in a statement, adding, "We must continue preparing our state to weather an inevitable economic downturn, and we need to be doing that while times are good."
Riley remarked, "We all know there's going to be, eventually — hopefully not soon — a downturn. And we're going to need those reserves. So I think everything we can get, we should put in reserves — everything that we hadn't planned on."
On the other side of the Capitol and in the governor's office, leading Democrats expressed openness to spending part of the windfall on other priorities, such as affordable housing.
Gov. Kate Brown said the revenue boost "presents a unique opportunity to protect Oregon's future." She suggested using a "substantial" amount of the money to pay down Oregon's public pension debt while also investing in housing, financial aid for college students, Oregon's troubled foster care system and the Oregon State Police.
"We need to approach these unexpected resources prudently," House Speaker Tina Kotek, D-Portland, said in a brief statement. "Any use of one-time funds should be focused on areas of significant need, such as housing and pension debts."
House Republicans credited President Donald Trump and a package of tax reforms a Republican-controlled Congress passed in 2017 for the stronger-than-expected revenue forecast.
Senate Republicans criticized Democrats for voting to levy a gross-receipts tax on businesses, which would collect well over $1 billion per year, days before state economists rolled out the rosier-than-expected report.
"This serves as another example of the majority party continuing to tax hardworking Oregonians to fill the pockets of big government," Senate Minority Leader Herman Baertschiger, Jr., R-Grants Pass, said in a statement.
The money from the new tax on businesses would be earmarked for education. Collections would be offset somewhat by cuts to Oregon's personal income tax rates and a proposed expansion of the earned income tax credit.
Baertschiger and his entire caucus opposed House Bill 3427, which creates the tax and allocates money for education. It passed the Senate Monday, and Brown is expected to sign it into law in the coming days.
Separately, K-12 education will also get a boost because corporate income tax collections have been higher than what economists expected. Under state law, that $616 million surplus gets "kicked" directly into the state school fund, which distributes state money to Oregon's local K-12 schools.
Sen. Brian Boquist, R-Dallas, moved to have the Senate revoke its approval of HB 3427 on Wednesday, arguing that the revenue forecast shows the state already has enough money and the new tax is unnecessary. The motion failed.