Oregon economic forecast shows growth

Oregon’s economy continues to grow steadily, if at a slower pace than it has in recent years, state economists told lawmakers on Wednesday.

That includes April personal income tax collections coming in higher than expected, leaving a “fifty-fifty proposition” that Oregonians will receive a $582 million kicker tax credit in 2026, two years after the state paid out the largest kicker in state history. The credit kicks in whenever income tax payments are 2% higher than lawmakers planned for when crafting their two-year budget.

But state economists warned that the additional tax collections – and refunds – might not happen because of uncertainty with the national economy.

“Should high interest rates, federal policy woes, or economic weakness among our trading partners derail the U.S. economy, the expected growth in Oregon’s tax collections will not come to pass,” they wrote in their economic forecast.

State economist Mark McMullen told lawmakers on the House and Senate revenue committees that continued high inflation, and the Federal Reserve indicating it won’t cut interest rates until December, increase the likelihood of a recession instead of the soft landing economists saw as more likely earlier this year.

Economists are also uncertain because of the upcoming federal election, he said. In the 2021 tax year, for instance, revenues rose in part because people cashed in on investments anticipating that the Biden administration and a new Democratic majority in Congress would undo some of the tax cuts passed under the Trump administration.

Oregonians received record kicker payments this year, with about $1,000 going back to the median taxpayer who earns between $35,000 and $40,000 annually. But economists say it doesn’t appear people are spending that money. Oregon doesn’t have a sales tax, though the corporate activity tax on gross business receipts acts as a hidden sales tax, and the state taxes vehicles, hotels, gas, and marijuana.

“One of the things that we expected to see with this $5.6 billion kicker was a big positive impact on these consumption taxes, particularly with our traditional experience with the lottery sales, and what we see during the tax refund season,” McMullen said. “And to date, we haven’t really seen that.”

There are still four more forecasts before lawmakers receive the final March 2025 numbers they’ll use to craft the next two-year budget, and a lot could change in the coming months. But for now, forecasters estimate the state will have about $34 billion in its general fund, up slightly from the 2021-23 biennium, and lawmakers will have more money available to dip into in case of emergencies in the current two-year budget cycle.

“We do see an increase in net available resources in the current biennium,” McMullen said. “A lot of that goes away in the next biennium again, because we’re right at this kicker cusp.”

Democrats, including Gov. Tina Kotek, used the forecast to call for more spending on housing, schools, and behavioral health.

“Oregon’s economy continues to be stable and productive,” Kotek said. “We have made meaningful progress on issues of top concern for Oregonians and worked to move our economy in the right direction. I look forward to continuing to partner with the legislature to focus on meeting people’s needs in every part of the state, from housing to safe schools to behavioral health services.”

Speaker Julie Fahey, D-Eugene, said the state will have the resources it needs, and that lawmakers need to focus on maintaining recent investments in housing, child care, early learning, mental health care, and job creation.

“The revenue forecast issued today indicates that, statewide, Oregon’s economy is stable and growing,” she said. “Our state will have the funding we need to continue paying for the critical ongoing programs that Oregonians rely on, thanks to prudent budgeting and strong leadership. It’s also encouraging to see steady productivity and solid labor market gains, as well as job growth in the semiconductor industry, both in the near- and long-term, due to jobs-boosting bills like the CHIPS Act.”

But Senate President Rob Wagner, D-Lake Oswego, struck a more cautious tone.

“The economy continues to remain strong — bolstered by Oregon’s advantageous business climate — and the Legislature has made prudent fiscal decisions that have put us in a good position as we begin to craft the next biennium’s budget,” he said. “Even so, the Legislature will face challenges to continue to fund and maintain the essential services and strategic investments made over the last two years.”

And Senate Republican Leader Daniel Bonham, R-The Dalles, called for reining in state spending.

“Across the state, Oregon families are having to tighten their budgets and make difficult choices as rising costs due to high inflation outpace their earnings,” he said. “It’s time the state does the same. The latest revenue forecast indicates that the state has continued to take more than enough of our hard-earned tax dollars. The Legislature — like many of our friends and neighbors — must learn to live within its means.”

Republished under Creative Commons license CC BY-NC-ND 4.0, courtesy https://oregoncapitalchronicle.com.