Oregon will return nearly $464 million to its taxpayers next year due to arcane state system

SALEM — State economists say nearly $464 million will be returned to taxpayers in 2018, after income tax collections were higher than expected this year.

Oregon operates on two-year budget cycles. The most recent biennial cycle concluded June 30.

When income tax collections exceed projections for the state's budget period by more than 2 percent, Oregon law requires that the money be returned to taxpayers, a phenomenon called the "kicker."

Since the state has collected about 2.7 percent more than predicted in May 2015, about $463.5 million will be returned to personal income taxpayers during next year's tax filing period.

A similar kicker rule applies to corporate income taxes, except the excess is kept and set aside for education funding. Corporate excise taxes ended the biennium at about $111 million more than the close of session forecast.

Wednesday's forecast was the first after the conclusion of a long legislative session. Revenue was a key point of contention between legislators who advocated for restructuring the state's tax system to boost revenue and those who wanted to cut costs.

Senate Minority Leader Ted Ferrioli (R-John Day) argued that the strong forecast and the expected kicker indicated that a sales tax on corporate sales — one of the main concepts raised by Democrats this session — was unnecessary.

"To me, this forecast signals two things: first, that we do not need a gross receipts sales tax, as our budget is in balance and our economy is producing surpluses," Ferrioli said, "And second, Oregonians will have larger refunds or lower tax bills which will act as a further economic stimulus."

In the next biennium, which began July 1 and ends June 30, 2019, the kicker will mean a slightly lower general fund revenue outlook, but will likely be offset by a robust lottery sales forecast, new legislation and higher ending balances, state economists said.

While Oregon's economic growth has slowed from previous levels, overall the state's economy is still performing well.

"Our growth still looks great compared to the typical state," said State Economist Mark McMullen, who added that there were some signs of slowdown in indicators of income such as salaries and wages, as well as retirement and investment income.

In a prepared statement last week, Oregon Gov. Kate Brown, a Democrat, promoted the state's job growth and used the economic forecast as an opportunity to tout the state's economic development policies.

"Oregon businesses and workers develop world-class products and ideas — and that's something to celebrate," Brown said. "But we can't rest on our laurels. There's still a lot of work to do to make sure our economy works for everyone — particularly for rural communities and underserved populations."

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