[Note: This post has been updated with links to a bill introduced today shortly after the post was published. The bill would suspend the kicker and devote the funds to the rainy day fund and education.]
Last week we learned that, unless the legislature changes course, the state will spend $473 million of unanticipated tax revenues on the so-called kicker. Not only will most Oregonians get relatively little benefit from this ill-designed tax cut, but history teaches us that the reckless spending could come back to bite us in the worst way.
The kicker spending is triggered when revenue exceeds the state’s two-year forecast by 2 percent or more. When that 2 percent threshold is reached, all unanticipated revenue is spent as a credit against taxes in the first year of the next budget cycle.
Because each person’s tax payment for tax year 2014 determines the size of their credit, the kicker disproportionately benefits the wealthiest Oregonians. While the typical Oregonian can expect to see about $146 knocked off her 2015 tax liability, the top 1 percent of earners can expect to see about $5,373, according to current projections by state economists. As a group, Oregon’s top 1 percent is expected to take home about 19 percent of all kicker dollars. That’s more than the bottom 60 percent of households — low- to middle-income Oregonians — will get (about 15 percent).
The kicker not only represents misguided spending priorities, it is also fiscally foolhardy.
Remember the last time the kicker kicked? It was in 2007. As the state was handing out $1.1 billion in kicker funds that December, Oregon (and the nation) was heading into the worst economic crash since the Great Depression. Huge cuts to schools and other key public services followed the recession that began that December.
Today, we don’t know when the business cycle will take a turn for the worse. What we do know is that at some point the economy will cease expanding and another recession will ensue. The legislature can suspend the kicker (PDF) but it doesn’t have the power to stop the business cycle. Without a robust rainy day fund when we start the next downturn Oregon will again be in a fiscal crisis.
Oregon lawmakers need to show leadership and be fiscally responsible (PDF). While they cannot repeal the business cycle, they can prepare for the downturn by suspending the kicker (PDF) and putting the savings into the Oregon Rainy Day Fund.
This post was originally published on www.blueoregon.com on May 21, 2015. The original post can be found at http://www.blueoregon.com/2015/05/tax-kicker-oregon-fool-again/.