After Raising Taxes, Oregonians Should Reject Moves to Gut the Kicker Law
The voters have spoken and agreed with legislative leaders that the “rich†and corporations should pay more taxes through Measures 66 and 67. Now, Governor Ted Kulongoski and others are turning their attention to transferring even more money from the private sector to government coffers through what is becoming known as “kicker reform.†As an appointed taxpayer advocate on the Governor’s Task Force on Comprehensive Revenue Restructuring, I have a different view of the kicker and its effect on budget stability.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 Task Force Proposal basically requires the Governor to develop a point estimate for General Fund revenue in each biennium, and then determine a range of roughly six percent above and below that point estimate. This would be an improvement over the current point-estimate-only approach, which is almost always wrong.
The problem lies in the Proposal’s requirement that only revenue above the top of the forecast range be returned to taxpayers in the form of kicker checks. 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 Proposal also requires that revenue above the point estimate, but below the top of the forecast range, be placed in a rainy day fund of up to ten percent of the General 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.
I will tell the legislature that locking this entire Proposal into the Constitution will simply make it easier for the state to avoid exercising the kind of real 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 will point out that, in my opinion, it will be relatively easy for opponents to derail the effort by telling voters that it is simply an attempt to “steal our kicker.â€
How to build a rainy day fund without “stealing the kickerâ€
In fact, the Proposal is built on a fallacy. Its supporters assume that the kicker somehow has prevented the state from building a substantial rainy day fund, when in reality there has been no legal prohibition against lawmakers budgeting for less spending than the point estimate revenue 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. They never do this, not because it’s legally prohibited, but because the political pressure to spend every dime is so strong.
Under the Task Force Proposal, 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 to grow government faster than the people have allowed it to grow under the current kicker law.
My recommendation is to accept the part of the Proposal that improves state revenue forecasting, but reject the part that, over time, would transfer billions of dollars from the private to the public sector.
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 and 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.
Steve Buckstein is founder and senior policy analyst at Cascade Policy Institute, Oregon’s free market public policy research center.
The problem lies in the Proposal’s requirement that only revenue above the top of the forecast range be returned to taxpayers in the form of kicker checks. 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 Proposal also requires that revenue above the point estimate, but below the top of the forecast range, be placed in a rainy day fund of up to ten percent of the General 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.
I will tell the legislature that locking this entire Proposal into the Constitution will simply make it easier for the state to avoid exercising the kind of real 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 will point out that, in my opinion, it will be relatively easy for opponents to derail the effort by telling voters that it is simply an attempt to “steal our kicker.â€
How to build a rainy day fund without “stealing the kickerâ€
In fact, the Proposal is built on a fallacy. Its supporters assume that the kicker somehow has prevented the state from building a substantial rainy day fund, when in reality there has been no legal prohibition against lawmakers budgeting for less spending than the point estimate revenue 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. They never do this, not because it’s legally prohibited, but because the political pressure to spend every dime is so strong.
Under the Task Force Proposal, 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 to grow government faster than the people have allowed it to grow under the current kicker law.
My recommendation is to accept the part of the Proposal that improves state revenue forecasting, but reject the part that, over time, would transfer billions of dollars from the private to the public sector.
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 and 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.
Steve Buckstein is founder and senior policy analyst at Cascade Policy Institute, Oregon’s free market public policy research center.
Why fight it?
I think replacing all seats in congress with good old fashion Socker moms is a good idea, at least they know how to budget money by priority.
But it's for our own good.
V, D or some other progressive will be along to explain how it's for our own good and good for Oregon.
Look, we just raised taxes to pay for nothing but waste - raises in the middle of a recession and the BETC tax credit. If that's how responsible government is with its money when we have the worst unemployment in the country then it hardly makes sense to think they would be more sensible with more money.
Yes, I know its not the worst unemployment, its like the second worst, sometimes we soar to third worst. Happy now Mr. "Teacher, you forgot to assign us homework for the weekend"?
Besides which. Did it ever occur to anyone that a rainy day fund sure sounds great, but the fact is, we have a heck of a lot of rainy days in Oregon.
You think these idiots who hand out raises during a recession aren't going to be able to declare just about anything an emergency and spend those funds?
Oh yeah? Really? You think so?
Then lets talk about our special session of the legislature. That's supposed to be just for emergencies right? Last I heard the boobs in Salem were debating whether or not to have plastic bags. Yep yep yep yep, that's a real emergency.
I can guarantee that if the state keeps the kicker, they will waste that money quicker than you can say "diversity consultant".
WARNING - USE OF THE TERM "SOME" OR "A LOT" SHOULD NOT BE TAKEN AS SAYING "ALL" OR "EVERY". INSTANCES OF THE SPECIFIC SHOULD NOT BE TAKEN AS STATEMENTS ABOUT THE GENERAL. WORDS MEAN THINGS.
I'm really up in the air at this point in time on this particular issue. Lack of confidence in the legislature aside, I'm still struggling to decide what the best policy, moving forward, would be.
The nature of a representative democracy will always reward the free spenders while those who preach responsibility will find themselves out of work. With a built in bias to spend ever more and tax ever more citizens need to create a mechanism that offsets that bias. Spending caps could work, highly restricted rainy day funds might help, and even the kicker keeps a lid on some spending. I see no reason to do away with any tools we have to restore fiscal sanity. I also see many reason to get that spending cap into place as soon as possible.
I will gladly exchange the kicker for a spending cap and rainy fund but I wonder if we could get it accomplished with the one topic rule for constitutional amendments. Breaking it up would be a disaster as parts could pass while others did not. Common sense says it's all one topic but the history of the state Supreme Court makes me wonder.
Given that we are having a special session to discuss things like banning plastic bags and what sort of material baby bottles should be made out of it is clear that emergency in the legislatures mind has a far different meaning than it does in mine.
Thus emergency is an all encompassing term. Given that, it is clear to me that almost anything could be passed under the emergency provision. As an example, COLA raises would be written in stone in the budget, at some point during a recession, tax receipts would fall, the budget could not be met, dip into the rainy day fund, voila everyone gets a COLA raise.
If the state wants a rainy day fund they can cut from current budgets and form the fund from the leftovers. They can do that tommorow if they want. That's basic Keynesian economics, cut the budget in good times to save for spending in bad times. So, the next time the economy is good, the state should cut and establish the rainy day fund.
I'm not against the rainy day fund at all. I think its a great idea. However I think the sacrifice to establish it should be on the states part, through cutting budgets, rather than on my part, through having my taxes de facto raised by eliminating the kicker. Ive already sacrificed under measure 67. Ive sacrificed with my property value going down and my property taxes going up. I'm done sacrificing to pay for solar tax credits and fat pay raises, sorry.
I am sure the less adept verbally will say refusal to want to sacrifice any more is "whining". If someone has a more cogent argument as to why I should pay any more Id be willing to listen to it. However pleas for more money, when I already pay 50% of my income in taxes, as a business owner who makes under six figures, tend to sound fairly dull to me.
Government needs the consent of the governed to work properly yet government these days operates often without the consent or approval of it's citizens. From city halls to the state capitol we see government employees charged with figuring out how to get more money from us. We also have government employees who want new laws, bigger agencies, and larger budgets without first determining if that's what the people want. What most disturbs me is the emergence of a new class of citizen, the government class. A class that holds itself out as "public servants" while raiding our treasuries for every last dime. A class that believes it knows better than the regular citizens when it comes to taxation and governing.
The kicker was put into place because of a general distrust of government and that distrust is more valid today than it was then. No matter how much they have they will try and spend more creating just one more in the long line of fiscal crisis we see today. It's like giving spare change to a junkie.
That's not my opinion. Measures 66 & 67 passed for exactly these reasons
..........with the financial support of the public employee unions......