Corporate Kicker Rears Its Ugly Head

News Release
February 8, 2010

Statement by OCPP executive director Chuck Sheketoff on the March revenue forecast

Today’s revenue forecast by Oregon’s state economist shows that the ill-thought-out kicker law can rear its ugly head in the most surprising places. Unless the legislature takes the opportunity to reform it once and for all, the kicker will continue to haunt Oregon’s finances and economy.

According to the forecast, revenue is down $365.4 million from the close of session forecast. A big contributor to the negative number is the out-of-control cost of the Business Energy Tax Credit (BETC). Although corporate income tax revenues are projected to increase, those increases are offset by expectations that more BETC credits than previously expected will be claimed on both personal and corporate tax returns.

The House Revenue Committee has taken an important step to rein in BETC. Friday night, the committee passed HB 3680, which would reduce BETC’s revenue impact by an estimated $55 million in 2009-11.

But hinting at the old adage that no good deed goes unpunished, the BETC reform bill, if enacted by the House and Senate, could trigger the corporate kicker. By law, the corporate kicker will kick if corporate income tax revenue comes in 2 percent or more over the close of session forecast for 2009-11. In this case, that 2 percent means $16.6 million over what was projected at the close of session forecast.

BETC credits end up being claimed on both personal and corporate tax returns, and have generally been split about 50-50 between the two. If the BETC reforms increase corporate income tax revenue collections by more than $16.6 million, the corporate kicker could be triggered.

The absurdity that much-needed BETC reform could itself trigger the corporate kicker should light the fire for kicker reform. If the fiscal crisis brought on by the recession has taught us anything, it is that we need to bolster our Rainy Day Fund.

And the best way of doing so is to save unexpected revenue collected during good economic times in the Rainy Day Fund.

Hopefully, after today’s forecast the legislature will take up a plan to improve the Rainy Day Fund so that good deeds on BETC do go unpunished.


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