Legislators table attempt to Steal the Kicker

In late 2007 I was appointed by Governor Kulongoski to the 30-member Task Force on Comprehensive Revenue Restructuring. I held one of two seats reserved for taxpayer representatives. The Task Force was supposed to find ways to make Oregon’s state and local government revenue systems more stable, among other goals. After meeting for about 14 months, no grand tax reform plans emerged, but several narrower recommendations did. The most prominent proposal took the form of Senate Joint Resolution 29 (SJR 29), which would amend the Oregon Constitution to, among other things, direct income tax kicker money into the existing rainy day fund.

The Task Force found, and I agree, that establishing more reliable state income forecasting and more prudent budgeting are worthy goals. I do not agree, however, that the state is the best repository for ending balances under a proposed new forecasting method. That money rightfully belongs to the individuals and corporations who earned it.

The Resolution requires the Governor to develop a point estimate for corporate income tax revenue and for all other General Fund revenue (primarily from the personal income tax) and a range for both estimates. This would be an improvement over the current point estimate approach, which is almost always wrong.

The problem lies in the Resolution’s requirement that only revenue above the top of the forecast range be returned to taxpayers in the form of a kicker. This will have the practical effect of eliminating most kicker refunds that Oregonians have come to expect when state revenue exceeds estimates by more than two percent.

The Resolution also requires that revenue above the point estimate but below the top of the forecast range be placed in the rainy day fund. The intent is to grow a more substantial fund that can help the state deal with recessions like the one we are in right now.

SJR 29 had a public hearing on March 12th before the Senate Committee on Finance and Revenue. I told the committee members that locking the entire Resolution into the Constitution will simply make it easier for the state to avoid exercising the kind of fiscal discipline that Oregonians should expect. The effect would be to permanently transfer billions of dollars from the private to the public sector into the foreseeable future. I also told them that in my opinion it would be relatively easy for opponents to derail the effort by telling voters that it was simply an attempt to “steal our kicker.”

How to build a rainy day fund without “stealing the kicker”

I explained in my testimony that the Resolution is based on a fallacy. It supporters assume that the kicker has somehow prevented the state from building a substantial rainy day fund, when in reality there has been no prohibition against lawmakers budgeting for less spending than the point estimate forecasts would allow.

If, for example, the revenue estimate for a biennium is $15 billion, the legislature is free to budget spending of $14 billion, and budget one billion dollars toward the rainy day fund.

Under the Resolution however, if the point estimate is $15 billion and the top of the range is $16 billion, the legislature can budget and spend $15 billion and must save the additional billion dollars. The effect is to transfer one billion dollars from the private to the public sector, and effectively grow government faster than the people have allowed it to grow under the current kicker law.

Therefore, the Resolution as written would make it easier for the state to avoid exercising the kind of fiscal discipline that Oregonians should expect.

My recommendation was to accept the part of the Resolution that improves state revenue forecasting, but reject the part that, over time, would transfer billions of dollars from the private to the public sector.

Then, if legislators wish to grow a substantial rainy day fund, they can ask voters to change the Oregon Constitution to require that they can only budget to spend up to the low end of the forecast range, and save everything else up to the point estimate until the rainy day fund has reached some predetermined level. This would leave the kicker law intact, restrain the growth of government, and grow the rainy day fund all at the same time. It would be reform that many taxpayers could enthusiastically support.

Legislators table the Resolution

In early May it was reported that key sponsors of this Resolution had decided to table it for the time being, afraid that sending it to voters now might get in the way of other tax-raising measures they want voters to approve. This is both good news and bad.

Not asking us to transfer billions more dollars to the state from our private pockets is a good thing. But not reforming the revenue forecasting method, and not looking for other ways to spend less and save more, is a lost opportunity. Hopefully, insightful legislators will figure this out, and find a way to exercise the political discipline needed to really do right by the taxpayers.


Steve Buckstein is founder and senior policy analyst at Cascade Policy Institute, Oregon’s free market public policy research center.

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  • Rupert in Springfield

    As Mr. Buckstein points out so well, the state has done two things brilliantly:

    One, convinced a lot of Oregonians that the kicker law, forcing returns of revenues over projections, creates an impossible barrier to creating a rainy day fund.

    How two unrelated things were formed in the minds of so many to create that logical construct is testament to the incredible power of propaganda. It is also testament to the low caliber of people in our government who like to pretend this logical fallacy baptizes them with the waters of fiscal absolution.

    From this follows the second fallacy: The state has convinced many Oregonians that somehow absent a rainy day fund, fiscal sanity is not to be demanded of government.

    The implantation of this mental idiocy in the minds of so many demonstrates logical wizardry and government propaganda at its pinnacle.

    Would that such brilliance actually be directed towards a solution to the matter at hand rather than simply another implement to extract money from the duped citizenry.

    Perhaps the best question to ask would be where the rainy day fund is to be invested?

    Should it be invested in the manner of PERS? Where government somehow invented the proposition that it could guarantee the performance of the market? That hubris is now costing every citizen dearly. But still some believe.

    Perhaps rainy day funds could be invested in the same funds government invested the education funds that are now the subject of such scandal?

    Or perhaps they should do simply as Mr. Obama does? Print the money and let the children of the foolish citizenry pick up the tab?

    The truth is government is not business, and thus government has no interest in saving money, or investing it. Government spends money, it does not create wealth. To expect business sense from government is to expect a teenager in the house to pay the mortgage. Government and teenagers both serve vital purposes, however investment is the province of neither. Indeed a teenager given the province of investing household funds shows more the stupidity of the parents than anything else.

    Unfortunately that does prompt the question – if the people are fool enough to invite a crook to run the store, don’t they deserve to be robbed?

    Obama is now printing 50 cents of every dollar he spends with such glee as he announces new spending programs almost daily. What we have in our state legislature is simply a case of envy. They wish us to mistake that envy for fiscal responsibility. I suppose it is fun to imagine a government rainy day fund managed so well that with every economic down turn our government would be at the ready, with no complaints, all services intact and no concern for weathering the storm.

    Of course I think I would probably have more faith that my mortgage would get paid were I to let my child invest the household funds at the skateboard shop.

  • Marvinlee

    Mr. Buckstein has written an excellent report. The legislatively proposed and citizen enforced kicker law has been used as a false whipping boy for chronic legislative spending diarrhea. Now, some individuals in the state government are simultaneously complaining about the kicker while proposing alternative stimulus packages. The kicker has the admirable result of limiting funds for extravagant state spending during boom periods. By so doing, the kicker reduces the painful spending adjustments necessary during downturns. The notion that state rainy day funds would have gone up by the amount of past kicker payouts is pure fantasy. Look, for example, at legislator Gisler’s record. What percentage of anti-spending votes do you find there?

  • Sybella

    I will never cease to be mazed at the greed put out by the government. I’m reminded of a kid in a candy store, they just can’t get enough. They do nothing for it and they want it all. Thank you Dr. Sprock. For those of you who do not know Dr. Sprock, please go meet him. You can find him on the internet

  • Harry

    “I also told them that in my opinion it would be relatively easy for opponents to derail the effort by telling voters that it was simply an attempt to “steal our kicker.”
    ======

    This is our mantra: “Don’t Steal our Kicker!!!”

    We must shout it louder than the liberal moonbats shouted “No blood for oil!” “The US shouldn’t steal Iraq’s oil!!”.

    Anything that Salem, Gov Ted and Treas Ben do regarding the kicker will to steal your money. And their propaganda machine is already getting traction for the canard that it really isn’t your money anyway, it is the State’s, so they should not have to return it to you, since it ain’t yours it’s theirs.

    Don’t Steal our Kicker!!!

    Whatever they do by creating new kicker laws (both Corp and Personal) will have the effect of theft.

    No theft!!

    Don’t Steal the Kicker!!

    Even if (WHEN!!) they bastardize the ballot titles process, the people should be able tell when they are being lied to and stolen from.

    Don’t steal the kicker!!
    Don’t Steal the Kicker!!
    Don’t STEAL the KICKER!!

  • Tom Jones

    Don’t steal our kicker tax refunds! Don’t steal our kicker tax refunds!

    That might be a better rallying cry for those blue collar Portland Democrats who still don’t know what the kicker is, like that mysterious check they get back from the government every once in a while, and always vote for the ones who try to steal it.

  • Jerry

    The kicker must be stolen as we need that money now more than ever.

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