More Likely than Not Kicker will Kick
On May 16, the Oregon Office of Economic Analysis presented their latest quarterly Economic & Revenue Outlook to the combined legislative revenue committees. The May forecast is pivotal, because the Ways & Means Committee uses it to begin to fashion the 2017-19 budget.
In summary, the state’s economy continues to grow but at a slower pace across regions and industries. Also, federal policy uncertainties – tax rates, infrastructure, deregulation, immigration, trade and health care – continue to nag.
What is particularly confounding is the likelihood that there will be two percent kicker refunds. This provision unique to Oregon deserves a memory refresher.
The kicker was approved by the 1979 Legislature as part of an overall fiscal reform package. The package, which included property tax relief, was approved by voters in the spring of 1980. In 2000, voters acting on a legislative referral put a large portion of the two percent surplus kicker statute into the state constitution (Article IX, Section 14). In 2012, voters modified the constitution (Measure 85), redirecting corporate kicker revenue to the General Fund for purposes of funding K-12 education.
The kicker law divides all General Fund money into two pots: (1) personal income taxes plus all other revenue and (2) corporate income taxes. At the end of each biennium, a calculation is made for each pot. If personal income tax collections plus all other General Fund revenue is more than two percent higher than was forecast at the close of the regular session, then a credit must be paid to personal income taxpayers. If actual revenue in the personal income tax pot exceeds the two percent threshold, then all the money in excess of the close of session forecast, including the two percent, is returned to taxpayers.
A similar calculation is carried out for corporate income taxes. If actual corporate income tax collections are two percent or more above the close of session estimate for corporate income tax revenue, then a kicker is triggered. Under Measure 85, revenue resulting from the corporate kicker calculation is allocated to the General Fund for purposes of funding K-12 education instead of being returned to corporations. This constitutional amendment applied to corporate kicker calculations starting with the 2013-15 biennium.
Surpluses in the “all other” pot fund lead to a credit on personal income tax returns. The amount of the credit is an identical proportion of each taxpayer’s personal income tax liability, before state credits, for the prior year. For example, if the kicker credit is five percent and the taxpayer had a liability before credits of $1,000, he or she would receive a credit of $50 on their income tax return.
There is a personal kicker refund implied by the forecast of $407.9 million for 2017. The projected corporate kicker of $75.5 million will be dedicated to K-12 education in the next biennium.
The upshot is that instead of reducing the $1.4 billion budget deficit in current service level to under $1 billion with the increased revenue from Oregon’s solid economy, the larger deficit will remain until treated by cost savings, new revenue, or both.
Contributed by: Gil Riddell | AOC Policy Director