Report predicts a ‘kicker’

The Capitol in Salem.

Oregon’s income tax and other revenues continue to outpace expectations, even as population growth and other economic indicators show signs of weakening, state economists told lawmakers Wednesday morning.

Lottery and general fund revenues could come in $183.4 million higher by the end of the current two-year budget than economists predicted just three months ago.

The latest bump means the state’s revenue expectations now stand more than $670 million above what economists predicted last May as lawmakers worked to finalize the roughly $24 billion general fund and lottery budget. The last forecast in November was $490 million higher than expected.

Economists said they were still trying to figure out the causes for the windfalls and whether they reflect a long-term trend in tax revenues or a temporary shift in response to President Donald Trump’s 2017 federal tax overhaul.

But one reason for the revenue growth was evident: more Oregonians are leaving estates of $5 million or so when they die, generating record-shattering amounts of estate taxes. Estate taxes are on track to exceed November’s prediction by $87 million. “It’s really being driven by a handful of estates,” said state economist Josh Lehner.

Personal income tax pre-payments also are defying predictions. “Withholding continues to be a lot stronger than the underlying economy,” said Lehner.

State economist Mark McMullen said job growth continues to slow and in-migration, which plays a significant role in fueling Oregon’s economy, has fallen below expectations. “The underlying economy is sort of slowing down in terms of growth.”

Forecasters expected 50,000 people a year to move to the state, but the number is closer to 35,000 based on recent estimates from Portland State University and the U.S Census, McMullen said. Nonetheless taxes and other revenues continue to outstrip expectations across the board, from income taxes to lottery and marijuana taxes.

“It’s a significant risk for the outlook,” McMullen said.

Democratic leaders were quick to cite the forecast as a reason for lawmakers to spend more on their priorities during the short 35-day legislative session.

“Now is the time to make responsible investments — in priorities like wildfire mitigation and preparedness, earthquake resiliency, and shelter space and services to address homelessness — that will ensure future generations won’t have to shoulder the burdens of our inaction,” Gov. Kate Brown said in a prepared statement.

House Speaker Tina Kotek, D-Portland, said lawmakers should dedicate some of the money to help people who are struggling the most despite the long-running economic recovery.

“In the midst of a statewide housing crisis, I think it’s essential we direct some of our ending fund balance toward helping individuals and families experiencing homelessness get access to shelter,” Kotek said in a written statement. “I will be increasing my request for one-time dollars for serving unsheltered Oregonians from $40 million to $60 million.”

Republicans alternately questioned Democrats’ decision to pass a $1 billion-a-year business tax to fund education last year, and cautioned their colleagues in the Legislature to set aside some of the money for the next economic downturn.

“Why did Democrats burden taxpayers with over $1 billion in taxes with the gross receipts sales tax disguised as an education bill?” Senate Republican Leader Herman Baertschiger Jr. of Grants Pass said in a statement. “The (Democratic) super majority is determined to weaken our economy and will do everything they can to take taxpayer dollars to fund big government.”

Rep. Greg Smith, R-Heppner, a member of the House Committee on Revenue which received the forecast on Wednesday, said he hopes fellow lawmakers on the Ways and Means Committee don’t spend all the money.

“The sunshine we’re seeing today may get a little cloudy in the very near future,” Smith said. As a lawmaker who had to make budget cuts during recession years, Smith said, “I think it’s really important for us to have a little restraint and continue to save a dollar or two.”

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