Economists Challenges Kicker Statement

Below is a letter from one of the most respected economists in Oregon responding to Senator Deckert’s comment on the kicker and the common phrase heard in the capitol that economists consider the kicker a waste. The letter was read this week on the Senate floor by Senator Jeff Kruse.
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Dear Senator Deckert:

This eMail concerns economists’ views on corporate kicker policy and your statement on the floor of the Senate today: “Economists across the spectrum … agree: There is no better way to waste our money than through the corporate kicker.”

I respectfully disagree. An Oregonian article claimed wide support for eliminating the kicker by quoting two economists. In fact, however, the article misquoted one of those economists, Dr. Phil Romero, and the other economist quoted was in the employ of a beneficiary of public spending. In any case, the article hardly represented a canvas of economists’ views. To wit:

1. I am an economist, serving on the Governor’s Council of Economic Advisors, a former finance professor, and former research officer for the Federal Reserve System.
2. I am strongly in FAVOR of the corporate kicker, if we must have a corporate income tax.
3. The kicker imparts useful discipline on a system that otherwise is biased toward overspending. One need only look at the pattern of State spending during the dotcom revenue boom as evidence of this tendency. The kicker disciplines spending by creating an offsetting claim on revenues should those revenues be unexpectedly high.
4. Most importantly, the taxation of corporate income significantly impairs economic growth. A recent study at UC San Diego provided data indicating that elimination of a corporate tax rate the size of Oregon’s would increase economic growth by approximately 1 percentage point per year. This is roughly a 25-30% increase in growth per annum.

The bottom line is that we would be far better off eliminating the corporate income tax altogether. We would have higher real economic growth and higher personal income tax revenues attendant that growth. Further, Eliminating the kicker to create a rainy day fund is doomed in concept and practice:

1. It is not clear why government budgets should be more stable than private budgets. It is already the case, with the kicker and without any rainy day fund, that public employment in the state is 20% more stable than private employment.

2. Elimination of the kicker will loosen spending discipline and increase State spending.

3. Every day will be a rainy day. The rainy day fund will not stand against the (increased) desire to spend all available resources.

The business community was foolish, in my opinion, to offer a one-year concession of the kicker. The action on the Senate floor today to eliminate the kicker perpetually shows, as Machiavelli once said, “A prince never lacks legitimate reasons to break his promise.”

These opinions are my own, and not those of my employer.

Randall Johnston Pozděna, PhD

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Posted by at 06:16 | Posted in Measure 37 | 8 Comments |Email This Post Email This Post |Print This Post Print This Post
  • Steve Plunk

    Well said. The legislature has time and time again proved it has no discipline. Doing away with this provision (why do we call it a kicker?) will allow further irresponsible spending.

    We have already seen this legislature enact extra constitutional annual sessions by declaring fictious emergencies. I’m sure we can expect fictious rainy days just as Dr. Pozdena predicts.

    It’s no wonder we all fear our government when illogical lawmaking like this proves our fears.

  • Anonymous

    don’t say “doing away with this provision.” call it what it is. say “increasing the corporate tax.”

    we must not lose the battle of language, because the language we use is what educates the public.

    • Steve Plunk

      I agree. In my haste to avoid calling it “the kicker” I threw in the “provision” thing. I’ve always hated calling it that. It dumbs down what is really happening, excess revenue collections being refunded to the taxpayers. Like you say, keeping it is raising taxes.

  • David G

    I find it amusing that all Democrats and most Republican public officials denounced the rainy day fund initiative on last November’s ballot – since it proposed creating the fund from future high tax revenues otherwise available to the legislature to spend.

    Now, however, the same lawmakers think the rainy day fund is a good idea when it is created from already collected funds which the legislature would otherwise not be able to spend because they would be refunded to corporations.

    • David G

      The obvious theme here is: once we get it into our pockets, we don’t want no one else messing with it.

  • Chris McMullen

    As much as I agree with Pozdena’s post, it’s a futile effort to send a letter filled with facts and logic to Brian Deckert. I mean Deckert has never, ever met a tax he didn’t like. He was pushing through spending tax dollars on attracting the MLB to Portland while crying about underfunded schools at the same time. The guy is a typical liberal fool.

    I’m ashamed to have Deckert represent my district.

  • Marvin McConoughey

    Senator Deckert should read more economics. It is rare to find complete agreement by economists on any important economic topic.

  • keen observer

    Wayne Scott must be replaced now.

    Has anyone heard a word out of Vance Day? Who?

    Day is a lazy embarassment and should be replaced by a Man, Russ Walker who has the guts to fight.

    There are some of us who want to fight.

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