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Regional Interests

Oregon taxpayers could see record $1.9 billion ‘kicker’ refund next year

Oregon State Capitol building, May 18, 2021. Oregon's unique tax law sends money back to taxpayers whenever personal income tax revenues come in at least 2% above initial projections during a two-year budget cycle.
Oregon State Capitol building, May 18, 2021. Oregon's unique tax law sends money back to taxpayers whenever personal income tax revenues come in at least 2% above initial projections during a two-year budget cycle.

Oregon officials are now expecting the state will send out a massive $1.9 billion “kicker” tax refund next year, after surging income tax receipts late in this year’s tax season.

If the projections hold, the refund — which takes the form of credits on 2021 tax returns filed next year — would be Oregon’s largest-ever kicker. The state’s unique kicker tax law sends money back to taxpayers whenever personal income tax revenues come in at least 2% above initial projections during a two-year budget cycle.

The new projection, delivered to a joint meeting of state senators and representatives Wednesday morning, was the most striking change that economists made since their last, eye-popping forecast in May. In that report, they anticipated the state would see a $1.4 billion kicker.

But economists were clear at the time that that forecast came with risk. Because of tax deadlines that were pushed back due to COVID-19, the extent of Oregon’s income tax returns was not clear in May.

“We were just getting the tax season started at that point,” state economist Mark McMullen told lawmakers. “We hadn’t seen the big wave of collections.”

When that wave hit, McMullen told lawmakers, personal income taxes were much higher than expected. He attributed that, in part, to wage growth from high-income earners, and far higher collections from businesses whose owners file personal income taxes rather than corporate taxes. Those factors only added to surging tax receipts that economists have attributed in part to federal stimulus packages and stepped up unemployment payments.

“The high-income folks across the aboard are seeing higher income gains,” McMullen said. He added that some business-owners might have frontloaded tax payments this year, rather than delaying them, because of fears of federal tax increases under President Joe Biden.

Under the anticipated kicker, the median income taxpayer would receive a $420 credit on this year’s state taxes. The average taxpayer, with an adjusted gross income of roughly $67,500, would receive $850. Since the kicker is awarded as a percentage of income taxes paid, the top 20% of earners stand to receive far more: between $1,600 and $16,880.

The state last hit a record kicker amount in 2019, the last time the refund was triggered, when more than $1.5 billion flowed back to taxpayers.

Separate from the personal kicker, the economists also expect the state to receive $847 million more in corporate taxes than initially expected. That “corporate kicker” will flow to K-12 schools.

Critics of the personal kicker say it sends needed dollars disproportionately back to wealthy Oregonians, rather than funding services or helping people in need. Fans of the policy paint it as a vital tool for fighting government waste and bloat.

In budgetary terms, the kicker results in the state having fewer dollars to spend in upcoming budgets. But even with massive refunds sent to taxpayers in the last decade, surging tax receipts have doubled the state’s general fund in the last decade, economists said Wednesday.

That’s not to say there aren’t risks presented. McMullen noted that the kicker can pose a special risk if a recession hits, since the state would be on the hook for paying out hundreds of millions of dollars at the same time it must close a budget gap.

That’s not expected anytime soon. Economists told lawmakers that the budget outlook appears stable, though they said any renewed economic restrictions on business operations due to the surging delta variant could present problems. Gov. Kate Brown has announced no such restrictions, though she has enacted statewide mask mandates in recent days.

On Wednesday, economists slightly revised their revenue outlook upward for the current two-year budget cycle, as well as the following two cycles.

In statements issued Wednesday, leading Democrats ignored the revised kicker number, opting instead to cheer positive economic news.

“We have more money to invest in pandemic relief, childcare and housing,” said Senate President Peter Courtney, D-Salem. “We’re still in a crisis.”

House Speaker Tina Kotek, D-Portland, called the forecast “welcome news” that could help lawmakers continue to focus on digging out of multiple crises. But Kotek warned that the stable outlook is imperiled by the COVID-19 surge that’s rapidly filling up Oregon hospital beds.

“We will maintain our recovery if we all commit to protecting each other from the Delta variant,” she said.

Republican leaders, meanwhile, issued statements painting a state in disarray despite surging revenues.

“Despite a budget that has doubled in 10 years, the state is worse off today for our students’ education, housing prices, and the safety of our communities,” said House Minority Leader Christine Drazan, R-Canby. “While it is great for the state that we have an increase in tax revenues, it is not the same thing as real progress for Oregonians.”

Copyright 2021 Oregon Public Broadcasting