SALEM — It’s still very early, but federal tax cuts and Oregon’s revised tax code have the state on track for a projected half-a-billion-dollar “kicker” rebate for state personal income taxpayers, according to the latest state economic forecast.
“In Oregon, the outlook remains bright as the economy continues to hit the sweet spot,” according to the Legislative Revenue Office report, released Wednesday.
Wages are rising faster than in other states, as are household incomes, the report said.
Revenue is $833 million higher than earlier forecasts. Oregon could have nearly $1.8 billion for the state’s Rainy Day Fund, the Education Stability Fund, and other additional money. Nearly $200 million would go to K-12 education.
“This is a forecast for the ages,” said Sen. Mark Hass, D-Beaverton.
A personal kicker of $555.3 million is projected for 2019-21. Oregon is the only state with a kicker, which requires the state to rebate any revenue that comes in above 2 percent of annual projections.
Personal income taxpayers receive a credit toward their future income tax payments. The projected corporate tax revenue “kicker” of $196.7 million is dedicated to K-12 schools.
The “kicker” amount won’t be determined until the end of the fiscal year on June 30, 2019. The final numbers will be released in August of that year. Recently, there have been personal income tax kickers of $402 million in 2015 and $464 million in 2017.
There are some warning signs in the forecast. The rate of growth is slowing compared to the years when the state was coming out of the last recession. Housing affordability continues to be a major issue for the regional economy. While wages and new construction are catching up, the rising cost of housing could crimp household spending or, at its extreme, push Oregon residents to migrate to other, less expensive states.
Forecasters said the surplus was likely due to federal tax changes and the Legislature voting to hold onto an estimated $250 million that would have been cut if the state had not revised its own tax code.
Forecasters said the long-term impact of federal tax cuts enacted by Congress and signed into law by President Trump won’t be known for awhile.
A long-term factor at play is the general aging of the population as the nation’s large generation of baby boomers moves into its retirement years. As a state largely reliant on income tax, a large retiree population is less optimum than those in prime earnings years.
Despite the concerns, forecasters nationwide peg the probability of recession over the next year at just 15 percent.
“We are fortunate to be on the good side of Oregon’s boom and bust system today, but without structural reform, the good times will not last forever,” said House Majority Leader Jennifer Williamson, D-Portland.
Williamson said lawmakers should work to stabilize the state budget and invest in programs such as public schools, health care, and public safety.
Sen. Jackie Winters, R-Salem, sought to temper talk of more money for new and existing programs.
“It remains clear that Oregon does not have a revenue problem; Oregon has a spending problem,” she said.
The forecast highlighted three other possible trouble spots that could change forecasts for the worse:
• The ability of the Federal Reserve to “engineer a soft landing” when the economy drops into recession.
• Deterioration of international relations and trade.
• A spike in energy prices.
— Reporter: 541-640-2750, email@example.com