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Reform the kicker so that it serves the interest of all

Commentary

Ten years ago, Oregon lawmakers were scrambling to fill a massive budget shortfall. The Great Recession had choked our economy, and Oregon’s revenue collections had slowed to a trickle. Teacher layoffs loomed. So too did cuts to services for seniors, foster children, and services that benefit all Oregonians.

Lawmakers managed to get enough votes to raise taxes on corporations and the wealthy, a plan that Oregon voters ultimately supported at the ballot box. The tax increases totaling some $700 million, however, fell short of the full amount needed to avoid painful budget cuts that came to wreak havoc on the lives of many of Oregonians.

Pouring salt into this major wound was the fact that just six months earlier, Oregon sent back to taxpayers a total of $1.1 billion in “kicker” tax rebates. This is but one example of the kicker’s record of failure. Over its history, the kicker has undermined Oregon’s stability to pay for a tax cut that mainly benefits the rich. It’s time to reform the kicker to make it serve the interests of all Oregonians.

The kicker is a provision in the Oregon Constitution that reduces Oregonians’ taxes based, not on any overpayment of taxes, but on a forecasting error made by the state economists two years earlier. When tax revenue comes in 2 percent or more above the forecast, all of the unanticipated revenue is kicked back to taxpayers, not just the amount over the 2 percent error threshold.

So the kicker is premised on the state economists looking into their crystal ball and accurately predicting changes in the global, national, and state economies two years out. Based on that, they must then do an exceedingly difficult task: project the revenues contributed by millions of Oregonians.

It’s no wonder that over the last 18 budgets, the state economists have been wrong 12 times, resulting in the kicker being triggered.

The most damning evidence against the kicker is that it has kicked in each of the last four recessions — at the worst possible time. It struck during the deep recessions of the early 1980s. It hit again in 1991 amidst a recession; however, lawmakers rightly suspended it to address a budget shortfall. It kicked during the recession of the early 2000s following the bursting of the Internet bubble. And it struck on the eve of the Great Recession, the worst economic crisis of the past seven decades.

By its very nature, the kicker makes it harder for Oregon to save money during the good economic times to be prepared for the inevitable bad times. It makes Oregon’s revenue system less stable, less able to maintain essential services when Oregonians need them the most.

And if that weren’t bad enough, the kicker squanders these resources in order to give a tax cut that mainly benefits the richest Oregonians. Last month, we learned Oregon is on course for a record-breaking kicker, worth $1.4 billion. Two-thirds of the kicker will go to the richest 20 percent of Oregonians. The typical Oregonian will get a $338 kicker, while the average member of the top 1 percent will get about $14,000.

The time has come for Oregon to reform this policy to serve the interests of all Oregonians. We need both a short-term patch and a long-term solution.

Right now, the Legislature should take action to suspend a portion of the record-breaking kicker that’s set to kick. It’s good to see that Governor Kate Brown has put forward a plan that would cap the kicker at $1,000 for all taxpayers. This would leave the vast majority of Oregonians unaffected while generating savings to reduce the unfunded liability of the Public Employee Retirement System and to invest in the housing and broadband infrastructure of rural Oregon. These investments will improve the quality of life for many struggling Oregonians.

Ultimately, we need long-term reform. As soon as the 2020 session, lawmakers should refer to voters a constitutional amendment to reform the kicker. For example, we could pare back the kicker so only low- and middle-income taxpayers receive it. Alternatively, the kicker could give a flat, equal amount to all taxpayers and still leave significant revenue to be saved. In either case, the remaining unanticipated revenue would then be saved in the Rainy Day Fund or used to address critical one-time needs.

The kicker’s record of failure is clear. So is the need to reform it to truly serve the interests of all Oregonians.