Oregon kicker limits what state can spend during flush times

Sen Doug Whitsett

Watch for Dem effort this year to eliminate the personal “kicker” tax refunds

by Sen. Doug Whitsett

Oregon taxpayers may receive a pleasant surprise in the form of an income tax “kicker” refund check, in the event that state revenues continue to outpace current projections. But a much stronger possibility exists that steps will be taken in the upcoming legislative session to deprive Oregonians of this benefit for the sake of further growth in state government.

The state’s kicker law was a product of the dismal economic conditions of the 1970s that were driven by inflationary pressures and fears of runaway property tax increases. In response, the 1979 Legislature passed laws to limit property and income taxes. Both the corporate and personal income tax “kickers” were included as part of those reform efforts.

Stated quite simply, the personal income tax “kicker” refunds excess taxpayer dollars to those who paid the taxes in the first place.  In the event that the income tax actually collected exceeds the estimated income tax revenue by two percent or more, the entire amount in excess of the estimate is returned to the people.

The initial purpose of the “kicker” was to limit the amount of money that the state government could spend during flush economic times. It remains the only functional spending limitation for Oregon state government. It only stands to reason that the enormous sums of money that the “kickers” have returned to taxpayers would otherwise have been spent on expanding bureaucracies and programs beyond our citizens’ abilities to fund them in bad economic times.

Taxpayers have received “kicker” tax refunds repeatedly over the years. The first refund was in 1985, when $90 million was repaid to taxpayers after revenue exceeded the forecast by nearly eight percent. Two years later, more than $220 million was refunded when revenue was over 16 percent above projections. The year 1989 saw roughly $175 million returned to taxpayers after revenue exceeded projections by almost 10 percent.

That same trend continued into the mid and late 1990s. Over $160 million was refunded to Oregonians in 1995; $431 million in 1997 and $167 million in 1999.

The “kicker” refunds proved so popular with Oregonians that they passed Measure 86 during the 2000 election. That measure, which passed with 62 percent of the vote, embedded both the personal income tax “kicker” and the corporate “kicker” rebate into the Oregon Constitution. Since that time, abolishing, reducing or repurposing the peoples’ “kicker” refunds would require a constitutional amendment.

Subsequent to the passage of Measure 86, taxpayers were refunded a whopping $253 million in 2001 and nearly $1 billion in 2007. Refunds were especially high that year because revenue projections were underestimated by over 18 percent.

The Legislature has already made several attempts to limit the refunds owed to the people. The “kickers” have been altered, delayed and suspended by various legislative actions. The corporate “kicker” rebate has actually been repurposed by a constitutional amendment.

In 2012, the people passed Ballot Measure 85 to amend the Oregon Constitution to eliminate the corporate tax rebates. The corporate refunds are now retained by the State in its General Fund to be used to provide additional funding for public K-12 education. In short, the state now keeps the excess corporate taxes instead of refunding them to the corporations that paid the taxes.

Governor Kitzhaber’s current proposed budget represents a salient example of why it is so important to have the “kicker’s” intended spending limit in place. He proposes to spend nearly every penny of projected revenue while neglecting to put adequate sums aside in case of emergencies or an unexpected economic downturn. His budget also continues to borrow money up to the state’s credit limits.  Moreover, it fails to set aside money to pay for the refunds in the event that the “kicker” is triggered by higher-than-anticipated income tax collections.

Unfortunately, this is not unusual. Because the revenue forecasts take place long before the revenue is actually collected by the state, it ends up coming out of the general fund in the following biennium. Reducing the revenue available to spend in the next biennium enhances the perception of the “kicker” as contributing to the overall volatility of the state’s tax system.

Due to the results of the 2014 election, Democrats will have an 18-12 supermajority in the Oregon Senate and are only one vote short of having a supermajority in the House. In my opinion, it is very likely that they will use these newfound majorities to find a way to keep or repurpose the peoples’ “kicker” tax refunds.

I predict that a law will be enacted this year to refer a measure to voters to amend the Oregon Constitution to eliminate, reduce or repurpose the personal income tax “kicker.” The measure will dedicate the repurposed rebate to fund a particular set of “critically needed” priorities. The Governor’s proposed budget actually anticipates spending additional available revenue to increase funding for post-secondary education. A cynic might predict that keeping the “kicker” will likely be expressed in terms of providing critical funding for university education.

One party’s near complete political control of the legislative process would enable that law to direct the Legislature to write the ballot title, summary and statement of explanation. It could also prevent the Attorney General and the Oregon Supreme Court from exercising their oversight over the language used in the measure.

All this can be done without a single Republican vote.

A similar set of circumstances occurred during the 2009 legislative session, which was dominated by Democratic supermajorities in both the House and the Senate in the aftermath of the 2008 elections. Two tax-raising bills were passed on largely party-line votes. An adequate number of signatures were gathered, which prompted a special election on what became ballot measures 66 and 67.

Democrats used their legislative clout to essentially rig the process for naming the measure. That process is typically done by the attorney general’s office. But instead, Democrats formed a joint committee to draft the title and explanatory statement. The language was favorable to the measure, prompting a court challenge by opponents.

The courts ultimately ruled in favor of the measures’ proponents, and they were ultimately passed by voters in January 2010.

If these predicted events take place, it will then be up to the voters to determine whether or not they want to keep the income tax “kicker” in place. As you can see, it has refunded billions of dollars to individual citizens, who have then used it to stimulate the economy by investing, spending or saving their money as they see fit.

There is never any shortage of people in government who believe they can find better uses for taxpayer dollars. They are willing and able to spend all of the money available in the absence of some kind of spending limit.

Voters should remember that the state is likely to have as much as $2 billion more to spend in the next budget cycle than ever before. I believe that the personal income tax “kicker” refund has succeeded in its intended purpose of keeping the state from spending even further beyond its means.

Oregon voters would be wise to keep their constitutional “kicker” spending limitation in place.

Senator Doug Whitsett is the Republican state senator representing Senate District 28 – Klamath Falls

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Posted by at 05:39 | Posted in 2014 Election, OR 78th Legislative Session, State Budget, State Taxes | 17 Comments |Email This Post Email This Post |Print This Post Print This Post
  • Bob Clark

    Maybe we can tell the governor we will pay him back with our happiness utils, gained by receiving the most materialistic cold hard cask kicker dollars. We encourage the Governor to visualize happiness rather than accept the cold hard cash wrought by the working efforts of ordinary Oregonians.

  • Richard Leonetti

    A simpler understanding of the Kicker is that the Legislature sets a spending budget that is always more than the one before and usually includes increased fees, often more borrowing and sometimes increased taxes. That is they submit a bill to the taxpayer for what they are going to spend to run the state. If good fortune smiles on the taxpayers, and they end up paying more taxes and fees than expected, the Kicker Law says the State must give the excess money back. What was asked for and spent is all the Government gets–taxpayer’s get back the windfall amount.

  • CherryAnn1000

    Not only do we need to keep the taxpayer kicker, but corporate needs to be returned as well. They pay taxes, too. And as shown by the article, if you give it to govt, it gets spent on foolishness (i.e., public education–a complete waste of taxpayer dollars).

    • thevillageidiot

      All that money from the keeping the corporate kicker was well spent on education and had excelent results. Would someone point those out to me? yes public education is a waste of tax dollars.

  • NAFTA Refugee

    The generation that was working in the 70s is now retired collecting PERS. With PERS sucking up more and more of the state budget, the shell game continues of “budget shortfalls” as money gets siphoned from other departments to pay for this money pit from hell. STICKING IT to the kids has become the answer as we unabashedly eat our young. Fiscally speaking.

    As they work two sometimes three part time jobs, helping their employers avoid the Obamacare tax, they have to eat out all the time. Car insurance rates are outrageous for their age group, (if they can afford a car) and they’ve moved back into the house rent free because their student loans are looming. Then I hear on the tv that they should invest in high risk 401k programs. With what money? Yes, the generation in the 70s protected itself. Who is protecting this generation?

    Keep your hands off our kicker!!!

  • mutie

    “excess taxpayer dollars”

    No. The kicker exists when actual revenue from the GROUP of taxpayers exceeds the guess two years ago. As an INDIVIDUAL, you’re paying exactly the tax rate you’re supposed to. As a GROUP, if more people are paying the published rate (or if wages have increased faster than expected), the kicker suddenly DECREASES each individual’s expected tax rate. Excess has nothing to do with it, and it’s an utterly insane way to fund public works. Flame away, but to treat the kicker as if the government accidentally collected “too much” from you as an individual is absolutely false.

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