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Alive and kicking

While Oregon lawmakers are busy rebalancing the budget and handling other important chores during the brief 2012 session, some of them are also taking another shot at fixing the illogical and counterproductive "kicker" law that rebates money to taxpayers when tax collections exceed projections by more than 2 percent. Chances they will succeed this time are slim, but at least they're making the effort.

And this year, they have a little extra ammunition in the person of former State Economist Tom Potiowsky, who was the one responsible for those projections for more than 10 years. Potiowsky knows as well as anyone the stupidity of returning money to taxpayers because the economy did better than expected only to see the economy sag again, forcing cuts in services that could have been provided as budgeted if only the money hadn't been returned.

He couldn't say that when he was the state economist, but now he can. Last month, in a speech to the City Club of Portland, Potiowsky — now chairman of the Portland State University economics department and head of its Northwest Institute of Applied Economic Research — vowed to work with lawmakers to reform the kicker. If the Legislature can't or won't do the job, he said, he will go to the voters with a ballot initiative.

Oregon's state budget is at the mercy of the personal and corporate income tax, the state's primary source of funds. The income tax is notoriously volatile, overfilling state coffers when times are good and most Oregonians are working, drying up when the economy heads south and workers get laid off. The state's biennial budget is based on the state economist's best guess of the income tax revenue that will come in over the next two years.

Those projections are not perfect, and sometimes more money comes in than the economist projected. The smart thing to do with that money would be to save it for the next economic downturn, thus smoothing out the peaks and valleys of the state's tax system. But lawmakers and voters thought they had a better idea.

The 1979 Legislature instituted the kicker, which says if tax collections exceed projections by at least 2 percent, the entire amount above the projection is returned to taxpayers. Voters later enshrined the kicker in the state Constitution, so voters will have to approve any reform even if it starts in the Legislature.

This year's reform attempt makes much more sense than the existing law. Senate Joint Resolution 202 would calculate "excess" tax money based on a six-year average of actual growth in personal income, not a two-year-old projection, and would divert money to a rainy-day fund.

Again, the future of that bill is uncertain, and it would require voter approval in any case. But it's a start.