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Oregon income levels remain strong despite worries about a potential recession and that has pushed state economists’ expectations for tax revenues up yet again, in the latest forecast they delivered to lawmakers on Wednesday.
One likely upshot is that taxpayers will receive an even larger “kicker” tax rebate on their 2023 taxes when they file returns in 2024: $3.7 billion total, up from $3.5 billion just three months ago.
At the same time, economists Mark McMullen and Josh Lehner said they now believe it’s more likely Oregon will experience a recession in the near future. They incorporated a recession starting next year in their revenue and economic forecasts. “It’s rather mild from a historical perspective,” McMullen said of the recession the state economists included in their modeling.
Oregon lawmakers will start working on the next two-year budget in a couple of months and economists had already predicted months ago that lawmakers would have approximately $3 billion less in revenue compared with the current budget cycle. That is because economists expected the state’s long run of windfall tax revenues, which was fueled in part by federal pandemic stimulus programs and upper income Oregonians cashing out capital gains, to slow down. In 2021, Oregon tax filers reported 77.9% more capital gains income than in the previous year. By contrast, tax filers’ reported wage income only grew 5.8% in 2021, according to the Oregon Office of Economic Analysis. “2021 was a great time to cash in your stocks or sell your business or the like,” McMullen said.
Oregon’s current two-year general fund and lottery budget is $29.3 billion, according to the Legislative Fiscal Office. For the 2023-2025 budget cycle, state economists currently expect lawmakers will have $30.7 billion in general fund and lottery money to allocate. “It’s going to make it more difficult to write the budget,” McMullen said.
The state is also on track to have $2 billion saved up in a general rainy day fund and a specific account for “education stability,” Lehner said. However, lawmakers can only appropriate money from the savings accounts by a three-fifths vote and that will require bipartisan support next year because Republicans picked up enough seats this month to eliminate Democrats’ state House and Senate supermajorities.
— Hillary Borrud; hborrud@oregonian.com; @hborrud
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I'm well-versed in economics, particularly in state budgeting and revenue forecasting. In the article about Oregon's income levels and the projected recession, several key concepts come into play:
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Tax Revenues & Kicker Tax Rebate: The article discusses the increase in tax revenues leading to a larger projected "kicker" tax rebate for taxpayers. This rebate is triggered when tax collections exceed initial projections by a certain amount, returning surplus funds to taxpayers.
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Economists' Forecasts: Mark McMullen and Josh Lehner, state economists, anticipate a potential recession in Oregon's future. They factor this into economic and revenue forecasts, highlighting the possibility of an economic downturn.
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Impact of Pandemic Stimulus Programs: The surge in tax revenues was partly fueled by federal pandemic stimulus programs, which contributed to increased capital gains income among upper-income Oregonians.
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Budgeting Challenges: Lawmakers face the task of budgeting for the next cycle with a projected decrease in revenues. The windfall from stimulus programs and capital gains is expected to slow down, affecting the state's budget planning.
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Rainy Day Fund & Bipartisan Support: Oregon has savings in a general rainy day fund and an education stability account. However, accessing these funds requires a three-fifths vote, necessitating bipartisan support due to the recent shift in the legislative balance.
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Legislative Impact: The article mentions that Republicans gained enough seats to eliminate Democrats' supermajorities in the state House and Senate, impacting the dynamics of passing key financial decisions.
Understanding these concepts allows for a comprehensive grasp of Oregon's economic situation, the challenges facing lawmakers, and the factors influencing budgetary decisions in the face of a projected recession.
