Oregon taxpayers will receive another record breaking “kicker” rebate worth $1.9 billion when they file their taxes next year, state economists told lawmakers during a revenue and economic forecast Wednesday morning.
The state’s unique rebate increased $500 million from the last forecast just three months ago, when state economists predicted a $1.4 billion kicker. As a result, it will break the previous record tax rebate the state paid out in 2020 which totaled $1.6 billion.
It will be the fourth successive kicker rebate since 2016.
Unprecedented federal stimulus and safety net spending during the pandemic largely fueled Oregon’s higher than expected revenues over the last year, economists have said repeatedly during updates to lawmakers. The state had just one forecast that predicted revenues would dip below expectations, in May 2020. Every forecast since then has exceeded predictions.
Huge growth in incomes reported by the state’s highest earners also drove Oregon’s tax revenue increase. Income from capital gains rose more than 20% in 2020 among the state’s top earners, but “the real jaw dropper” was the income increase reported by the highest earners with income from pass-through and sole proprietorship businesses, said state economist Mark McMullen. Economists had expected those business owners would be harder hit by the pandemic.
The 1.5 million other Oregon taxpayers, individuals with taxable income up to $125,000 and joint filers with up to $250,000, reported an average wage gain of 2.4% in 2020.
“The high income folks across the board are seeing higher income gains,” McMullen said. “It’s pretty clear that the economic disparities widened during the recession.”
McMullen noted that many taxpayers have flexibility to choose when they realize capital gains and when they report income and losses on their tax returns, so some amount of Oregon’s recent tax revenue increase could reflect that taxpayers expected to benefit financially by reporting income when they did. “Anecdotally, it’s because of anticipation of federal tax increases,” McMullen said.
In Oregon’s unique rebate system, the kicker is triggered when tax revenues for a two-year budget cycle come in more than 2% above economists’ forecast made at the start of the cycle. The state must return the full amount above the forecast to taxpayers.
How large a tax credit each tax filer will receive will be based on how much Oregon income taxes they paid for tax year 2020.
For Oregonians with the state’s median income of $35,000 to $40,000 in adjusted gross income, economists expect to pay out a kicker of $420. The top 1% of Oregon income earners, who bring in more than $442,700 annually, could receive average kicker rebates of $16,880. Sen. Ginny Burdick, D-Portland, noted that the highest income earners in the top 1% could bring in significantly more, for example a kicker worth $100,000.
Oregonians' cut of the 2022 kicker tax rebate will depend on how much income they earned in 2020. State economists provided a table of estimated rebate levels on Wednesday.
Examples of the federal aid that poured into Oregon over the last 18 months include higher-than-usual unemployment benefits for almost anyone out of a job due to the pandemic, even if they weren’t seeking other work, and assistance for renters, business owners, health care providers and other groups.
The latest forecast is good news for the approximately $27 billion state budget. Oregon is on track to bring in nearly $900 million more in lottery and tax revenue than economists predicted just three months ago for the budget cycle that ended June 30. The revenue outlook is also up by more than $800 million for the current two-year budget. After several cycles of Oregon paying out kicker rebates, state economists said in May that they erred toward a rosy revenue forecast for 2021-2023 in an effort to reduce the likelihood of another rebate in 2024. They cautioned lawmakers against spending too much of the predicted revenue.
Leaders in the Legislature and Gov. Kate Brown largely greeted news of the kicker and positive revenue forecast with ambivalence, with Democrats touting the strong economic recovery but citing the need to spend more to address extensive long-running societal needs and Republicans accusing Democrats of ineptly managing the state budget. Both parties’ caucuses welcomed the additional state revenue to respond to wildfires and the pandemic.
“The Legislature now has money to invest in COVID and wildfire response and recovery and preparing for upcoming unknown expenses in the next biennium,” Senate Republican Leader Fred Girod of Stayton said in a statement. “Most importantly, our kids need to be in school full-time to get caught up after a year of learning loss. This money can help our kids recover.”
Senate President Peter Courtney, D-Salem, agreed. “We’re still in a crisis,” Courtney said in a statement. “The Legislature will help out Oregonians who’ve hurt the most. I look forward to doing this as fast as we can.”
News of the record kicker provided fodder for people who want to overhaul or eliminate it, including some Democrats on the House and Senate revenue committees. Burdick, the chair of the Senate Committee on Finance and Revenue, said one option could be to reform the tax rebate so it is “more progressive.”
Oregon voters have expressed general approval of the tax rebate policy, John Horvick, director of political research for Portland-based firm DHM Researched noted on Twitter Wednesday. He pointed to April 2019 survey results that showed 66% of respondents said they strongly or somewhat supported the kicker.
Andrew Kalloch, a Eugene resident, called for people who can afford to go without their tax rebates to donate a portion or all of the money to local nonprofits and set up a website to promote the effort called “kicker for good.” Kalloch wrote on the website that “the kicker is an unexpected windfall for Oregonians—and the wealthier the Oregonian, the bigger the windfall ... Our neighbors can’t wait for the state to enact reform and neither should we.”
As the Northwest News Network reported in 2016, Oregonians already have been given the option to donate their entire kicker to help fund public schools but few chose to do so. By the time most people had filed their taxes that year, the kicker donation option raised just $417,000 for schools and most donations came from those with little income since the average kicked donated was around $73.
— Hillary Borrud