Oregon to Vote on Changing Unique Tax Refund

By: - September 17, 2012 12:00 am

For many years, Oregon has been the only state in the country where tax revenue that exceeds what the state estimated it would collect is automatically refunded to taxpayers. Much of Oregon’s political leadership has complained that these “kicker” refunds make it much more difficult for the state to save money in good times to use in bad ones. Now, a November ballot initiative might finally overhaul Oregon’s kicker, but some of those same political leaders worry that it isn’t the right approach.

Oregon actually has two separate refund mechanisms: a personal kicker and a corporate kicker. At the end of the state’s two-year budget biennium, if revenue from individuals comes in 2 percent above the state’s forecasts, the additional money is returned to them, proportional to their tax bills. The corporate kicker works the same way, but for corporate income tax revenue.

The ballot initiative sponsored by Our Oregon, a coalition of public employee unions, would redirect money from the corporate kicker to K-12 education. Scott Moore, the group’s communications director, argues that the state’s unusually large class sizes and unusually short school year are signs that schools desperately need the money.

“What it comes down to is the education students are getting today,” Moore says, “is not the same one that adults in Oregon had and took for granted when we were students.”

The initiative, Measure 85, has no organized opposition. Even business groups say they don’t put much value in the refunds because they show up so unpredictably. “You can’t plan for it,” says Ryan Deckert, the president of the Oregon Business Association. “You can’t make decisions. There’s zero certainty.”

Yet even without organized opposition, Measure 85 has been the subject of handwringing from some political leaders, even ones who would seem to be its logical allies. That’s because some supporters of a kicker overhaul worry that it could undermine similar action against the costlier personal kicker.

In 2007, the personal kicker returned $1.1 billion to Oregonians. Just two years later, the state lacked budget reserves that were anywhere near adequate to deal with a multi-billion dollar budget shortfall, leading the state to raise taxes.

That sort of boom and bust is typical for Oregon. Without a sales tax, Oregon depends to a large extent on income taxes on capital gains, which are highly sensitive to the condition of the economy. The kicker exacerbates the volatility. “During good times, we give these tax refunds and during bad times we have no alternative but to raise taxes,” says Ginny Burdick, president pro tempore of the Oregon Senate. Even some supporters of smaller government, such as Steve Buckstein of the conservative Cascade Policy Institute, argue that there are better ways to limit spending than having hundreds of millions of dollars in tax refunds ride on how well the state’s economists can see the future.

Nonetheless, legislators have been reluctant to act to change a program that is popular with regular taxpayers. In 2000, 62 percent of Oregonians voted to place the kicker in the state constitution. The corporate kicker isn’t nearly as politically unassailable: It benefits only C corporations, which are mostly headquartered out of state.

Moore argues that the personal kicker will only change as part of a larger agreement to alter the state’s revenue structure. Governor John Kitzhaber has begun conversations about just such a deal this summer. Moore thinks that if Measure 85 passes, it will demonstrate voters’ support for funding for government services such as education and, in doing so, could make such a deal more likely.

Burdick, Deckert and others see the situation differently. They argue that by eliminating the portion of the kicker that is politically weak, the measure will leave only the popular personal kicker left — and make changes to it even more difficult. Even if Measure 85 passes, Oregon still will hand hundreds of millions of dollars to taxpayers the next time the economy grows beyond expectations, rather than saving for the next budget crisis.

Burdick, a Democrat, says she’ll reluctantly vote for Measure 85 because she wants to end the corporate kicker. Still, if it passes, she won’t hold out much hope for the concept she’s pushed with a Republican colleague since 2003: diverting money from both the personal and corporate kickers into a rainy day fund. “It’s not just more difficult,” Burdick says, “it’s basically impossible.”

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Josh Goodman

Josh Goodman helps lead research on fiscal management and place-based economic development programs as part of Pew’s state fiscal health project. Goodman has served as a primary author for Pew studies that examine how states should evaluate tax incentives and maintain budget discipline when implementing those incentives.