Oregon tax collections continue to surge, with Oregonians paying $1.2 billion more in income taxes this spring than last year.
The increasing state revenues aren’t due to higher taxes. Instead, according to Oregon’s quarterly economic forecast, many people cashed in assets in late 2021, causing a short-term income boost.
Most of the tax windfall will be sent back to taxpayers as credits or refunds on the taxes they file in spring 2024. But state lawmakers will have about $427 million more to spend in the 2023-25 budget cycle than the state’s forecasters anticipated in March.
State economist Mark McMullen told a legislative panel Wednesday morning that the tax revenue was “nothing short of shocking.” All states with income taxes have seen higher-than-expected revenue this year, he said.
“We really could never have imagined the stuff that we’ve seen in the past couple of months,” he said.
Democratic leaders in the Legislature quickly identified uses for the extra money, including additional spending to help struggling families pay for child care and rent.
“Oregon is an economic powerhouse – leading the nation on the road to recovery,” said Senate Majority Leader Rob Wagner, D-Lake Oswego. “With this strong forecast we will continue to save for a rainy day and invest in families working to pay for rent, paying for prescription drug costs and childcare.”
The economic news isn’t all good, state economic experts told legislators. Pessimism and inflation are both high, gas prices skyrocketed following Russia’s invasion of Ukraine and China is instituting a new round of pandemic-related shutdowns that are expected to worsen supply-chain issues that have made all kinds of products more expensive and harder to find.
“Inflation is at these multi-decade highs,” state economist Josh Lehner said. “So even though incomes are up and jobs are up and everything seems to be improving from a fundamental economic perspective, consumers are pessimistic because the cost of living is rising, and rising faster than underlying income growth.”
Average wages are up from before the pandemic started in 2020, but about 80% of Oregon workers are now earning less adjusted for inflation than they did pre-pandemic. Only the lowest-paid workers have had their wages grow faster than inflation.
Eventually, the higher prices associated with inflation could cause people to stop buying as much and companies to employ fewer workers. That’s not a problem now but could become one if inflation doesn’t slow, Lehner said.
Much of the additional tax revenue collected by the state is sent back to taxpayers a couple years later in the form of a credit or refund under the state’s unique “kicker” rebate policy. Higher tax revenues in recent years have led to pushes from some Democrats and the Oregon Center for Public Policy, a left-leaning think tank, to reconsider the kicker and instead use unexpected tax revenues for social programs or divide it evenly among Oregon taxpayers.
This story originally appeared in the Oregon Capital Chronicle and is republished here under a CC BY-NC-ND 4.0 license. Read more stories at oregoncapitalchronicle.com.