Oregon taxpayers will get a record $1.9 billion off their personal income taxes in 2022 as a result of tax collections exceeding projections in 2019.
For the average taxpayer with household income of $67,500, the savings will amount to $850, according to rough estimates that state economists furnished to lawmakers Wednesday during a presentation of the state’s quarterly economic and revenue forecast.
For the median household — half with household incomes around $35,000 to $40,000, and half below that range — the estimated savings is $420.
The share of 2021 tax liability that will be offset is 17.5%, short of the record of 18.6% set after the 2005-07 budget cycle. Oregon state government has a two-year budget, and the 2019-21 cycle closed on June 30.
But the $1.9 billion total would set a record, ahead of the $1.7 billion returned after the 2017-19 budget cycle, and $1.1 billion after the 2005-07 budget cycle.
“Today’s revenue forecast is another sign that Oregon’s economy is healthy, strong, and on the path for a rapid recovery,” Gov. Kate Brown said in a statement. “This is welcome news at a time that Oregonians continue to face immense challenges: from wildfire recovery to extreme drought to our worst surge of cases and hospitalizations during the COVID-19 pandemic."
Under a 1979 law that voters made part of the Oregon Constitution in 2000, money is returned when actual tax collections exceed budgeted projections by 2% or more, a provision known as the “kicker." The money is returned in the form of credits against taxes owed the following year; lawmakers discontinued the direct mailing of checks to taxpayers in 2011.
Two years ago, the refund amounted to $1.7 billion, or 17.17% of tax liability.
Economists from the Oregon Office of Economic Analysis also reported an excess of $847 million in corporate income tax collections. However, unlike personal income taxes, the excess amount goes into the state school fund under a 2012 ballot measure. Lawmakers approved a two-year, $9.3 billion state school fund.
The estimated figures will be refined around Oct. 1.
The $1.9 billion for personal income tax refunds exceeds previous forecasts of $1.4 billion on May 19 and $570 million on Feb. 24. As late as December 2020, no kicker was forecast, and just six months before then, state economists projected losses of $2 billion in tax collections following the downturn resulting from the coronavirus pandemic.
“But this cycle is different,” senior economist Josh Lehner said at a meeting of the House and Senate revenue committees.
That’s largely because federal aid to individuals and businesses during the pandemic propped up the economy in Oregon and other states. That aid was in the form of stimulus payments to individuals, forgivable loans to businesses, federal unemployment benefits to laid-off workers and other programs.
Lehner said Oregon incomes as a whole rose 10% in the past 18 months, although the state has not fully recouped job losses from the pandemic. The Oregon Employment Department has reported that about 70% have been regained, but Lehner said a full recovery is likely sometime next year — which still would put Oregon on track to a faster-than-usual recovery after a slump.
State Economist Mark McMullen acknowledged that because of how the kicker law is written, the largest amounts go back to wealthier households that pay more in state income taxes — and that the pandemic has widened the gap in Oregon’s income inequality.
Brown said in her statement:
“My priority will be to continue to address the challenges facing Oregon families, including the disparities resulting from systemic racism, with a particular focus on ensuring our hospitals and health care workers have the resources they need to continue to provide patients with life-saving care.”
McMullen said projections for the current two-year budget cycle, which began July 1, are “stable.” He told lawmakers later than it is too early to tell how proposed additional federal spending may affect Oregon’s economy.
Both houses of Congress have passed a $3.5 trillion budget framework along party lines, but details of programs requested by President Joe Biden have yet to be filled in. The Senate also has passed a $1 trillion measure Biden requested to pay for public works and other infrastructure. The House will take a vote on it by Sept. 27.
Lawmakers approved a two-year state budget of $26.8 billion, up from the $25.6 billion proposed by Gov. Brown back on Dec. 1, before they ended their 2021 session on June 26. These figures are for spending from the general fund — which consists largely of personal and corporate income taxes — and Oregon Lottery proceeds, the state’s most flexible sources. Counting $48.6 billion in other funds and $37.4 billion in federal funds, both of which have restrictions on spending, the total state budget is $112.8 billion.
McMullen said the state also ended the budget cycle with healthy reserve funds, although lawmakers drew $400 million from an education reserve in 2020. Lawmakers created two reserve funds in 2002 and 2007; they had little time to accumulate savings before the Great Recession of 2007-10, but the intervening decade gave them time to grow.