Kicking back taxes is no way to run a state
Oregon’s biggest-ever “kicker” means the state’s economy is doing well. That’s good news. It also means we’re set for another battle in Salem over whether to spend some of that money to benefit Oregon and its residents or refund it all to individual taxpayers in the mistaken belief that it prevents “excessive taxation.” It does nothing of the kind, despite Republican rhetoric.
We’ve been over this ground before, but it’s worth covering again. The “kicker” makes Oregon the only state in the country that turns down the benefits of an improving economy.
Let’s be clear: No one’s income taxes have been increased. If you earn the same this year as last year, you will be taxed at the same rate. If your income goes up, so will your tax. That’s the way income taxes work. There is nothing unfair or excessive about it.
So why does the state have more money? Because unemployment is down, and many of your neighbors who were unemployed last year have jobs this year. They’re paying income taxes they didn’t pay last year.
Now we get to the rationale behind the “kicker” — which is anything but rational. The state’s economic forecasters periodically estimate how much revenue the state will collect in the future, so lawmakers can write a budget. Being economists, they tend to be cautious in those predictions.
If the estimate is low by 2 percent or more, the kicker law says the entire amount in excess of the forecast must be refunded to taxpayers. Remember, that’s not because anybody paid any extra taxes. In essence, it’s a tax cut.
Critics of government like to say it should be run like a business. OK, suppose you own a car dealership. As part of your planning, you estimate how many cars you will sell in the next year. Now suppose the economy improves unexpectedly, and you sell 5 percent more cars than you predicted.
Do you say, “Oh, I should share this good fortune with my customers,” and send a rebate check to everyone who bought a car from you? It seems more likely that you would invest that unexpected revenue in your business. Maybe you give your employees a raise, or expand the service department, or put the money in the bank in case car sales drop next year. But you don’t give the money back.
And yet that’s exactly what Oregon does when times are good. If the biggest-ever kicker materializes next year, the median state taxpayer would get a credit of $338 on his 2020 taxes.
House Minority Leader Carl Wilson, R-Grants Pass, called the kicker a “constitutionally mandated check on excessive taxation.” Nonsense. If the personal income tax is excessive, then pass a bill to lower it. Don’t give back money collected because the economy is doing well.
House Speaker Tina Kotek wants to divert half the kicker, estimated to be $1.4 billion, for a variety of projects including a seismic upgrade to a freeway bridge in Portland. Gov. Kate Brown would rather see the state pay down the unfunded liability in the Public Employee Retirement System, which would benefit every school district and local government in the state.
The state constitution requires a two-thirds vote of both houses of the Legislature to divert kicker funds. That requirement was part of the amendment passed by voters in 2000 that put the kicker in the constitution.
Democrats would need two Republican votes in each house to divert kicker funds — far from a slam dunk.
We would rather see the state reduce PERS liability — along with passing long-overdue PERS reforms — than fix bridges or build electric vehicle charging stations with the kicker funds.
How the money is used is worth debating. Whether Oregon should refuse the benefits of an improved economy and refund legitimately collected tax dollars is not.