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Another ‘kicker’ tax refund could be in the works for Oregon taxpayers

State economists Mark McMullen, left, and Josh Lehner answer questions from Oregon lawmakers in 2015. McMullen gave his final economic and revenue forecast to a legislative committee on Wednesday.
Jonathan J. Cooper
State economists Mark McMullen, left, and Josh Lehner answer questions from Oregon lawmakers in 2015. McMullen gave his final economic and revenue forecast to a legislative committee on Wednesday.

Economists cautioned that the potential of a $582 million refund was still shaky, with warning signs on the horizon.

Oregon economists offered caution Wednesday that a financial rough patch could be on the horizon — but that might not be enough to hold off yet another “kicker” tax refund in two years.

Less than a year after lawmakers passed a two-year budget, state economists once again say they might have underestimated how much the state would collect in personal income taxes and other revenues.

State Economist Mark McMullen told lawmakers that could mean Oregon will send $582 million back to taxpayers in 2026, in what would be the state’s sixth consecutive kicker refund. The unique law refunds income tax payments that come in at least 2% higher than what lawmakers budgeted for.

The state Office of Economic Analysis said Wednesday another kickeris “a 50-50 proposition at this point.”

“It’s far from a sure thing, because we have another tax season to go,” McMullen said.

A separate kicker refund dealing with corporate taxes is set to send $588 million to K-12 schools in the next budget.

The new forecast showed that Oregon corporate tax and personal income tax payments have shot past the assumptions economists released three months ago when lawmakers were in a high-stakes legislative session.

McMullen now expects the state will generate $532 million more in general fund revenuethan expected in February — money that would largely go back out the door if a kicker is ultimately triggered as predicted.

When general fund and lottery revenues are combined, economists predict Oregon will reap $1.7 billion more in the current two-year budget cycle than expected when lawmakers set their budget last year.

The question raised Wednesday was whether the forecast might fall short. McMullen told lawmakers that high interest rates meant to cool inflation could lead to the “soft landing” federal policymakers have hoped for, and so avoid an economic recession. But the longer that interest rates remain high, he noted, the larger the possibility they trigger a downturn.

“The data flow is consistent with a soft landing,” McMullen said. “It’s also consistent with a hard landing. As we see rates higher for longer, then we start to shift.”

In fact, he said, many leading economic indicators McMullen and his colleagues monitor have already shown signs of a recession even though one has not emerged. “They’ve all turned south relative to the inflated rates they were a year or year or two ago,” McMullen said.

Economists told lawmakers that stagnant population growth, slow job growth and a loss of manufacturing jobs in Oregon could spell trouble. At the same time, wages are growing and the share of working-age residents with a job has never been higher.

That’s led economists to predict steady growth in tax revenues in coming budget cycles, and led many Democrats to cheer what they framed as a stable outlook.

“Oregon’s economy continues to be stable and productive,” Gov. Tina Kotek, a Democrat, said in a statement. “We have made meaningful progress on issues of top concern for Oregonians and worked to move our economy in the right direction.”

“Our state will have the funding we need to continue paying for the critical ongoing programs that Oregonians rely on, thanks to prudent budgeting and strong leadership,” House Speaker Julie Fahey, D-Eugene, said in a statement.

Not all Democrats were so sanguine. Senate President Rob Wagner, D-Lake Oswego, said in a statement that lawmakers “will face challenges to continue to fund and maintain the essential services and strategic investments made over the last two years.”

Republicans used the forecast to call on Democrats to rein in what they depicted as reckless spending.

“The latest revenue forecast indicates that the state has continued to take more than enough of our hard-earned tax dollars,” Senate Minority Leader Daniel Bonham, R-The Dalles, said in a statement. “The Legislature — like many of our friends and neighbors — must learn to live within its means.”

House Minority Leader Jeff Helfrich, R-Hood River, cheered the prospect of yet another kicker refund, which he said would provide “welcome tax relief for families struggling due to inflation and high prices.”

Wednesday’s meeting marked the final time McMullen will present a revenue forecast to lawmakers. After more than a dozen years as state economist,he is stepping down to take a job at Common Sense Institute Oregon, a business-oriented research group. McMullen has served as state economist longer than any person in state history. And while lawmakers praised his work,he also has critics who complain his consistently low revenue forecasts sent billions back to taxpayers in the form of kicker refunds that could have been spent on state programs.

McMullen nodded to the high-pressure nature of the job in his final comment to legislators at Wednesday’s hearing.

“I’ll miss being here,” he said. “Kinda.”

Copyright 2024 Oregon Public Broadcasting

Dirk VanderHart is JPR's Salem correspondent reporting from the Oregon State Capitol. His reporting is funded through a collaboration among public radio stations in Oregon and Washington that includes JPR.