tax refunds

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.

 

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.”