Gordon Smith

Time Again for Political Football with the Oregon Kicker

A historically large income tax kicker has tempted Oregon officials to offer up ideas of how to divert and spend some of it on transportation, rural housing, broadband expansion and PERS.

A historically large income tax kicker has tempted Oregon officials to offer up ideas of how to divert and spend some of it on transportation, rural housing, broadband expansion and PERS.

The Oregon income tax kicker has been a political football since its inception in 1980. It has gone from checks in the mail to a tax credit and a cunning way to control the size of government to a potential cash register for an expanding government liability.

Governor Kate Brown initiated the latest play for kicker funds last week with a proposal to keep $500 million of a projected $1.4 billion in personal income tax refunds that Oregonians will receive when they file their tax returns next year. Brown says half of the amount would pay down the PERS unfunded liability, $200 million would pay for rural housing and $29 million would go to expand rural broadband.

Brown’s proposal didn’t contain a lot of specifics, which reflects that it is more of a sales pitch right now than a well-tuned legislative initiative. According to OPB political reporter Dick VanderHart, Brown sounded out her plan with Senate and House Republicans, some of whom would be needed to reach the two-thirds requirement in the Oregon Constitution to divert kicker refunds. Their initial response wasn’t too encouraging – or surprising.

House Speaker Tina Kotek earlier suggested a portion of kicker refund revenue should be retained and pay for various transportation projects. Brown was cool to that idea, indicating any retained money from the kicker should go to hold down PERS costs to public employers.

Brown admitted her proposal is a tough sell. However, she drafted it in a way that most Oregon taxpayers wouldn’t feel the pinch. Under her proposal, kicker refunds would be capped at $1,000 per tax filer, which means Oregonians who declare $55,000 in taxable income wouldn’t see any reduction in their kicker refund. The average kicker refund is estimated at around $338.

The income tax kicker refund is unique to Oregon and was sold originally as a way to hold down government spending in the good times when higher-than-expected revenue poured into state coffers. Here is an explanation of when a kicker refund is triggered and how it is calculated.  https://youtu.be/c439JJmsipM

The income tax kicker refund is unique to Oregon and was sold originally as a way to hold down government spending in the good times when higher-than-expected revenue poured into state coffers. Here is an explanation of when a kicker refund is triggered and how it is calculated. https://youtu.be/c439JJmsipM

Some 331,000 Oregon taxpayers would see their refunds reduced. The biggest rollers in the state may receive kicker refunds as high as $14,000.

The $1.4 billion kicker is a tempting target to spend rather than return. However, rounding up even Democratic votes might be challenging after tough votes to approve a $1 billion per year commercial activities tax to fund the Student Success Act and a PERS measure that included a requirement for public employees to contribute to their own retirement accounts. Tough votes loom on a much-amended cap-and-trade proposal and a potential funding measure to sustain the Oregon Health Plan. Add to that an earlier session vote to divert $108 million of kicker rebate funds to bolster the state General Fund. 

The income tax kicker is unique to Oregon. It was created on a belief that you could capitalize politically on an economist inclination, which some call prudent, to underestimate personal and corporate income tax revenue. The way the kicker law works is that if tax revenue exceeds 2 percent of projections, all the revenue above the projection must be returned to taxpayers based on what they paid in taxes. 

Former Oregon Senate President Gordon Smith recognized the political potential of a kicker based on an economic formula, with no real basis in economics, and sealed it in the Oregon Constitution. To cement the idea into Oregonian lore, Smith insisted kicker refunds be sent to taxpayers in checks they could fondle, sign and deposit.

The kicker underwent some rethinking as school funding suffered, college tuition soared and the public pocketbook went wanting during economic downturns. The corporate income tax kicker was the first political casualty, with its revenue siphoned off to a rainy day fund, which happens to total currently around $3.5 billion.

The personal income tax kicker commands more voter loyalty, so political leaders over the last four decades have been chary to challenge refunds when times are good enough to generate them. That seems to be changing as the collective public memory of the kicker fades.

A confusing explanation of what produced the historically large projected kicker refund doesn’t make it seem all that sacred. A chunk of over-realized revenue results from a business tax break that Brown and the legislature ended. The GOP-backed federal tax cut wasn’t kind to many Oregon taxpayers, which contributed to reduced taxpayer refunds on state income tax returns. A strong economy played a role, too.

 

Trump’s Bad News is Every Republican’s Bad News

Former Oregon Senator Gordon Smith lost his seat in 2008 in part because GOP presidential candidate John McCain pulled out of the state while Barack Obama pursued a vigorous grassroots campaign that boosted Democratic voter turnout. Similarly, the absence of a national campaign structure in Oregon this year will be a huge loss for the state's Republicans.

Former Oregon Senator Gordon Smith lost his seat in 2008 in part because GOP presidential candidate John McCain pulled out of the state while Barack Obama pursued a vigorous grassroots campaign that boosted Democratic voter turnout. Similarly, the absence of a national campaign structure in Oregon this year will be a huge loss for the state's Republicans.

News this week that Donald Trump’s presidential campaign war chest is down to $1.3 million is sounding alarms for Oregon Republicans.

In stark contrast, Hillary Clinton raised nearly nine times more money than Trump in May, and she entered June with about $42 million to spend. Corey Lewandowski, Trump’s campaign manager through the primaries who was fired on Monday, has called Trump’s campaign lean, with only 30 paid staffers. What cash and manpower there is will likely go to swing states, but Oregon isn’t viewed as one of those.

Donald Trump's decision to fire embattled campaign manager Corey Lewandowski is one of many signs of trouble for the presumptive Republican nominee's campaign leading into the November general election. 

Donald Trump's decision to fire embattled campaign manager Corey Lewandowski is one of many signs of trouble for the presumptive Republican nominee's campaign leading into the November general election. 

The bad news for Oregon Republicans is they won’t get much if any help from Trump to bolster their own campaigns. The absence of a national campaign structure is a huge loss. Just ask former two-term Oregon Senator Gordon Smith, who lost in 2008 to Jeff Merkley.

Smith became the first incumbent Oregon senator to lose re-election in 40 years. A key reason for his loss was the near absence of a campaign in Oregon by GOP presidential nominee John McCain compared to a vigorous grassroots effort by Barack Obama. What Republican apparatus there was got pulled in the latter stages of the campaign when McCain, strapped for money, concentrated on other states instead.

There is virtually no chance Trump will even try to score an upset victory in Oregon, which casts an even darker shadow over the nearly invisible campaigns of Republicans running for statewide office this year.

Donald Trump has less cash on hand than Ben Carson and Ted Cruz, whose campaigns have been suspended.  (Source:  NPR )

Donald Trump has less cash on hand than Ben Carson and Ted Cruz, whose campaigns have been suspended. (Source: NPR)

What seemed not that long ago to be a blockbuster election year in Oregon has turned into a bust. There are little known challengers trying to unseat Senator Ron Wyden and Governor Kate Brown. Dennis Richardson, the best known Republican running for statewide office after a better-than-expected challenge in 2014 to John Kitzhaber’s re-election, has so far run a low-profile campaign for secretary of state.

Figures from the FEC show Hillary Clinton with a robust campaign war chest approaching the general election. (Source:  NPR )

Figures from the FEC show Hillary Clinton with a robust campaign war chest approaching the general election. (Source: NPR)

Without the oomph of a national campaign, these GOP candidates may be left further in the fumes to their Democratic counterparts who will have the benefit of added fuel from an expected Hillary Clinton campaign team in Oregon.

The other political sparks that can incite higher voter turnout are ballot measures. Those don’t look too good for Republicans either. So far, only two measures have been certified for the November general election ballot in Oregon – one to repeal the mandatory 75-year-old retirement age for judges and the other to slap a major tax increase on corporations with $25 million or more in annual sales in the state. IP 28 is more likely to generate voter enthusiasm on the political left than the political right, even if it winds up losing.

A number of other measures, such as ones dealing with a higher minimum wage that might have bumped up turnout, have been scrapped because of the anticipated electoral brawl over IP 28. It's expected to suck up a lot of campaign cash.

Many of Trump’s most ardent supporters are voters who have hung out in the fringes of politics, many without casting ballots. Fundraising, campaign organizations and message discipline aren’t important to them and may even be antithetical to their vision of an ideal “tell-it-like-it-is" candidate. For political insiders who know through experience what it takes to win big-time races, Trump is a nightmare unfolding in slow motion.

Trump’s puny fundraising, his tiny staff and his ubiquitous media appearances in lieu of political advertising will affect more than his own poll numbers. They will affect many down-ballot candidates seeking re-election or, in Oregon’s case, trying to get noticed. Just ask Trump's 16 frustrated and defeated primary opponents.

The Possibility of a Nuanced Ruling

Most media focused last week on oral arguments before the U.S. Supreme Court on the controversial federal health insurance mandate for individual Americans. However, justices also heard arguments on other aspects of the legal challenge to what has become known as ObamaCare that could lead to a more nuanced decision and perhaps even more complexity for states.

Justices listened to arguments on whether the constitutional challenge of the individual mandate is ripe because it hasn't gone into effect yet. Commentators expressed doubt the court would effectively punt a big decision for this reason. They also considered the severability of the federal health care reform act. They wanted to know if voiding the individual mandate would void the popular ban on excluding health insurance because of pre-existing conditions. 

A ruling isn't expected until late June, which will allow for a lot of media speculation, political bombast and unease by state officials who will play a key role in implementing health care reform in whatever form it survives from the court case.

Based on the intense questioning by justices and the balky performance of the U.S. attorney arguing the government's case, you could easily conclude the federal individual health insurance mandate is in trouble. The court seems clearly split, but the split echoing from the questioning suggests at best a 5-4 rejection of the mandate.

However, the mandate underpins a grander bargain. Creating the largest possible pool of people with health insurance coverage gives health insurers the ability to absorb and spread costs, including from new insureds who may be combating cancer or suffering from a chronic disease. Dispatching the mandate could put even more pressure on health insurance premiums, which are continuing to rise. That, in turn, could erode the quality of existing employer-provided health insurance and, in some cases, cause employers to drop coverage for employees altogether.

The unspoken part of the story crowded out by commentary on the mandate is what happens if we return to the status quo before Congress approved ObamaCare. The truth is, that status quo has disappeared. 

  • The exclusion of pre-existing conditions and expansion of family coverage to children up to age 26 are very popular provisions, which few would want to lose — especially in an election year.

  • Many employers facing stiff domestic and international competition are looking for ways to trim their health insurance costs. One way is to hire temporary workers without benefits.

  • The public safety net has more holes in it, as Medicaid participation has been limited and funding cut for public health care clinics.

  • Heath care technology continues its steady march ahead, opening new diagnostic and treatment options and adding more costs.