The Dirty Little Secret in the Revenue Forecast

Chuck Sheketoff

While the corporate kicker ought to be repealed as flawed policy and the unanticipated revenues instead always directed to Oregon's rainy day fund, today's revenue forecast shows a serious flaw in the way the corporate kicker is calculated. The flaw results in profitable corporations getting almost a blank check once the kicker is established. It takes years for the State to know the true cost of the corporate kicker, and the cost does not necessarily match the amount of unanticipated revenues that caused the kicker to kick.

In the May 2005 revenue forecast the corporate kicker from the 2003-05 biennium was slated to cost $62.6 million, because that was the amount of unanticipated revenues above the 2003 Close of Session forecast. That's how much the 2005 Legislature thought the kicker would cost when they adjourned. Because the corporate kicker is based on projected income not past tax payments like the personal kicker, its cost rose to $101 million in the September 2005 Close of Session forecast. Newspapers across the state ran banner headlines announcing the $101 million corporate kicker.

Here's the latest news from the revenue forecast: today's revenue forecast now shows profitable corporations are reaping a whopping $153.5 million from the 2003-05 kicker, more than double what the 2005 Legislature thought they'd be giving away when they adjourned.

As long as the 2007 Legislature refuses to turn the corporate kicker into a permanent source for building Oregon's rainy day fund, at a minimum they ought to change the way it is calculated and stop writing a blank check to profitable businesses. Today's forecast shows that the corporate kicker needs fiscal discipline reform. A fiscally responsible legislature would make sure that future corporate kickers are based on past tax payments, not projected payments.

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    It was VERY frustrating to read today that the Legislature appears to be taking the new increase in projected revenues as a sign that tax reform isn't necessary--and will let the $10 minimum apparently stand this session.

    Dumb, dumb dumb. Think it will get any easier when we run into fiscal trouble again? Why the House did not pass a bill which included all parts of the agreement earlier this winter...just because Wayne Scott pulled the rug out from under them?

  • Scott in Damascus (unverified)

    I'm gonna go out on a limb here, but why don't we set tax policy based on the actual friggin' dollars that the state treasury collects?

    Crazy I know - but it might just work!

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    We (students) are going down to Salem tomorrow for another push for education funding. Our contact down there sent me a list of the appointments and a note about the committee meeting scheduled for the corporate minimum discussion. Her note was something to the effect that, due to the new revenue forecast, the corporate minimum debate is pretty much a dead issue this time around. It is highly frustrating that once again, there is this assumption that "ok everything is cool now" and we don't need any kind of reform. If you look at the Oregon Legislature site's press releases, the Republican response (and I'm not saying one party is to blame, or the other) that "“Today’s forecast is a credit to hard working Oregonians. The private sector drives our economy and our state budget, and the forecast is a reminder the Legislature should avoid enacting excessive regulations that harm our economy." In other words, don't mess with the tax structure because "See? It all works out in the end." That kind of thinking is a big part of why this state is in a perpetual roller coaster of boom and bust.

  • Russ Kelley (unverified)

    Speaker Merkley's comments on the May forecast...

    Merkley: Higher Ed Will Be Top Priority

    SALEM— House Speaker Jeff Merkley (D-Portland) released the following statement in response to the report today that Oregon’s general fund and lottery fund revenues are up $152 million over previous projections:

    “Securing significant additional investment in our universities and colleges will be our top budget priority during these final weeks in the legislative session.

    “The good news from the May economic forecast is that we can match the investment requested in the Governor’s budget for the operation of our colleges and universities. But we must not stop there. We can and must undertake additional steps as well, including:

            **        Implementing the ‘shared responsibility’ model for student scholarship assistance to make higher education much more affordable for our students.
            **        Greatly enhancing our investment in the construction and repair of our college and university buildings.
            **        Utilizing the anticipated revenue to make a significant improvement in the operations budget for our colleges and universities beyond the Governor’s budget.

    “Investing in our universities and community colleges is the single most important economic development strategy we can pursue. We can create a healthy business environment and attract good jobs and investment to Oregon, but we need a long-term strategy to do it.

    “As part of that long-term strategy, this is the moment to adopt an increase in the absurdly low $10 corporate minimum tax and dedicate it to higher education. The resulting revenue will strengthen higher education today, but more importantly, it will build the foundation for a world-class university system in the years ahead.”

  • David Wright (unverified)

    Chuck, could you explain exactly how the corporate kicker is calculated, in particular how it is different from the personal kicker?

    As I understand the personal kicker calculation, if actual collections of personal income tax revenue for a biennium exceed the budgeted projections of such revenue by at least 2% (or is it "more than" 2%?) then the entire excess revenue must be kicked back to the people who paid income taxes during that biennium, in an amount proportional to their total tax liability for that period.

    In other words, to use an overly simplistic example, if the total excess is $1 million, and I contributed 1% of all personal income taxes collected for that period, I'd get 1% of that $1 million back -- i.e., $10,000. (Obviously the actual excess numbers are much greater, and an individual's actuall contribution much smaller, but that's the basic idea.)

    Is that an accurate description of the personal kicker? If so, how does the corporate kicker calculation differ?

    I guess I don't understand how a business could increase its kicker amount, without a corresponding increase it its tax liability for the same period.

  • jim karlock (unverified)

    Chuck, Pleases explain how getting your own overpayment back is so outragous?

    Or is it just that you think you know how to spend other people's money better than they do?

    Thanks JK

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    Two responses to two questions..

    Jim Karlock proves that too many Oregonians don't understand the kicker. The kicker has NOTHING to do with making an overpayment in taxes. The kicker is the result of the estimate by the state economist for a two year budget period being off by 2 percent or more. Had the estimate been more accurate, no refund.

    David Wright is partially right...the kicker is based on an estimate being exceeded by 2 percent or more. Corporate and personal revenues are compared against the estimate separately. For personal revenues, they see how much the actual revenues exceeded the projection, and calculate a refund based on the prior full tax year's tax liability (this year it will be a percent of Oregonians' 2006 tax liability). For corporate kicker they calculate the percent based on anticipated revenues in the tax year beginning in the current year. HB 3048 would fix the problem and calculate it based on past tax year.

  • David Wright (unverified)

    Thanks for the response, Chuck.

    I'm still not at all clear on exactly how the corporate calculation works now. However, after reading HB 3048 myself, it boggles the mind that anyone would even consider calculating the rebate in any other fashion than that specified in the bill.

    <h2>This one actually seems like a no-brainer -- it may be a bit "wonkish" and hard to get too worked up about, but still it's obviously the right thing to do.</h2>

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