revenue volatility

Hass: Boost Student Success and Curb Tax Volatility

Oregon’s economic forecast continues to look rosy, but also a little “bizarre,” according to State Senator Mark Hass, D-Beaverton, because the strong economy contrasts with struggling schools and Oregon’s unique personal income tax kicker law.

Oregon’s economic forecast continues to look rosy, but also a little “bizarre,” according to State Senator Mark Hass, D-Beaverton, because the strong economy contrasts with struggling schools and Oregon’s unique personal income tax kicker law.

Legislative newsletters and press releases can be informational, but not always newsy. The one dispatched today by Senator Mark Hass combines informational and newsy.

Senator Mark Hass, whom the Portland Business Journal referred to as Oregon’s Mr. Fix-It, hopes the work of the Joint Committee on Student Success, a rosy economic forecast and the prospect of returning a half billion dollars to state taxpayers could prompt action on Oregon’s volatile tax system.

Senator Mark Hass, whom the Portland Business Journal referred to as Oregon’s Mr. Fix-It, hopes the work of the Joint Committee on Student Success, a rosy economic forecast and the prospect of returning a half billion dollars to state taxpayers could prompt action on Oregon’s volatile tax system.

The occasion for the communication from Hass, a Beaverton Democrat who chairs the Senate Finance and Revenue Committee, was the release of the latest quarterly Oregon economic forecast.

“I want to update you with my impression of the remarkable economic forecast released today,” Hass wrote. “Most indicators – including jobs, income and gross domestic product (GDP) – are all improving. This suggests Oregon’s booming economy will continue into the foreseeable future.”

A booming economy also means higher-than-projected state tax revenues – quite a bit higher. Hass says state coffers will have $911 million more revenue than was projected in the state’s two-year budget approved during the 2017 Oregon legislative session.

“Because revenues grew faster than what economists estimated, the state will send back $555.3 million to taxpayers due to Oregon's unique ‘Kicker’ law,” Hass said. “So, we have this bizarre confluence of a strong economy, struggling schools and sending back a half billion dollars to taxpayers.”

Hass has tried unsuccessfully to convince his legislative colleagues on both sides of the political aisle to look seriously at ideas to reduce the volatility of Oregon’s income-tax-dominant taxation system and modernize state taxation of corporations. Here’s how he explains the dilemma:

“Oregon's volatile tax code is too reliant on the income tax. In good times when unemployment is low, the state brings in too much revenue and we send it back to the taxpayers. In bad times when people are struggling, Oregon has a train wreck. While today's forecast paints a rosy picture, it is important to remember the big jump in projected revenue is emblematic of Oregon's boom-and-bust revenue cycle.”

This may not be new “news,” but it isn’t information that makes its way into a lot of political discussions these days. When it does, it is usually in the context of calling for more revenue or blaming the Public Employees Retirement System for Oregon’s unsustainable spending.

Hass threads the needle differently. He says fixing Oregon’s “bizarre confluence” of a strong economy, struggling schools and a personal income tax kicker should occur during economic good times, not economic bad times. Warning signs abound, he says. Oregon’s economy is still growing, but the pace of its growth is slowing. The housing affordability crisis is taking its toll on many Oregonians. Personal income taxes make up 80 percent of the state’s General Fund, while corporate taxes contribute 6 percent.

Hass hasn’t given up on some type of tax reform, but is concentrating his efforts leading up to the 2019 legislative session on traveling around Oregon as part of the Joint Committee on Student Success, talking to students and education and business leaders.

“My hope,” Hass wrote, “is that through the work of the Student Success Committee and this economic forecast, we end up mixing new educational policies with structural tax reform for stable, well-funded schools, community colleges and universities.”

Tax Measures and Tax Reform

When Oregon voters receive their ballots this weekend, they will confront three very different tax measures, which could have an impact on the prospects of comprehensive tax reform in the state.

The ballot measures deal with prohibiting more real estate transfer fees, phasing out the estate tax and modifying the corporate income tax kicker. Proponents of comprehensive tax reform in Oregon worry the measures could remove issues from discussion that could sweeten a broader tax measure.

So far, none of the tax ballot measures has stirred much public debate, overshadowed by the higher profile and more costly fight over two measures to allow privately owned casinos in Oregon.

The three tax measures have received spotty editorial support. Measure 79, which would place a ban on future real estate transfer fees in the Oregon Constitution, has been called overkill since there already is a statutory ban in effect. Measure 84, which phases out the estate tax, has been questioned because there already is a $1 million estate exemption. Measure 85, which redirects corporate income tax kicker rebates to K-12 schools, has been criticized because it won't automatically mean more money for education.

Local government officials seem resigned that the constitutional ban on real estate transfer fees will pass, with financial backing by the National Association of Realtors. Washington County is the only Oregon municipality with a real estate transfer fee in place. While there weren't any nascent plans to challenge the statutory ban on such fees, some local officials have suggested the tool would be appropriate for capital projects such as restoring and modernizing county courthouses.

Backers of the estate tax repeal have branded their effort as ridding the state of a "death tax" that cripples family-owned small businesses. However, the Legislative Revenue Office estimates the repeal, when fully phased in, would result in an annual tax savings of $120 million, suggesting it would have a fairly limited impact.

Opponents of Measure 84 also have identified a potential flaw, which they say could create an unintended capital gains loophole.