Your kicker is other people’s money

T.A. Barnhart

Your kicker is other people’s money

the Oregon kicker law takes away other people's money.

The kicker is a crazy-making law. Yes, it’s nice to get a big, fat “refund” check in the mail. But when that means that two years later, the state is going to have a huge deficit, was it really worth it? Those who argue, yes, it’s our money and the state took too much — well, they didn’t take too much of your money. They took the right amount of your money. They always do.

The issue is how many “you’s” there are.

No matter the state of the economy, tax rates remain constant. If one person makes $40,000 per year, that person is taxed at 9%. If 200,000 people make $40,000 per year, each of them is taxed at 9%. The number of taxpayers does not affect the rate at which taxpayers are taxed. One taxpayer, twenty, twenty thousand, two million — the rates remain constant until changed by law. And then they are changed for everyone.

What changes is how many people are taxed, and at what income level. If more people are working, then the state is going to collect more taxes. If more people are working at higher incomes, then, again, the state will collect more taxes. That’s basic math. Cut the number of workers, or reduce worker wages and salaries, and taxes will go down. Easy-peasy:

T=(N * R1)+(N * R2)+…(N * Rn)

where

T = taxes collected
N = Number of taxpayers
R = paying specific tax rates

If R1 is the lowest rate and Rn is the highest, then if N1 increases and Nn (or any of the categories above N1) decreases, then T gets smaller. It’s simple 7th grade algebra (which is part of the problem, given how few Americans are conversant in math at that level). Oregon was not taxing people too much prior to disbursement of the 2007 kicker; they simply miscalculated how many total people would be paying taxes and at what rate. The state economist guessed wrong — on the low side.

And that’s the stupidest part of the kicker: it’s a fracking guess. Every two years, as part of the budget process, the state economist guesses what will happen to the economy over the next two years. If the state economist fails to see a glitch in the future, like a worldwide economic meltdown, then his numbers could be a bit off. If that guess is wrong on the high side — ie, the economist over-estimates how much the state will collect in taxes and fees — the kicker is not an issue. A wrong guess on the high side means the problem is not having enough money to pay for services as the biennium progresses (this is where the Legislature found itself two years ago, resulting in massive cuts to the budget).

But guess wrong on the low side, as happened four years ago, and state law requires that the “excess” money be refunded — kicked-back — to taxpayers. (Kick back? Where do we usually hear that term?) But here’s the dumb thing: Not one of those taxpayers who receives a kicker actually paid too much in taxes. Each one paid exactly the right amount of taxes. What really happened is that the state economy did better than the state economist expected — two years earlier! Yay state economy. This is a good thing, of course. Except instead of saving that surplus in a rainy day fund, the state is forced to simply chuck it out the door.

Or let’s put it in terms that conservatives enjoy: Imagine state government was run like a business…

What business, upon receiving word from its accountant that it had enjoyed an unexpectedly good year, would take the surplus it received and spend it all on a party, or vacation, or even a donation to a favorite charity? How responsible would anyone regard a business owner who did not use at least part, if not most, of an unexpected surplus to invest in new equipment, or perhaps pay off debt, hire new staff to enable further growth, or at the very least to sock some of it away as a hedge against a future down turn? The conservative view is that a responsible business owner would do anything but piss away the money — and yet that’s exactly what conservatives demand of state government: Have a surplus? Chunk it out the door.

Let’s be crystal-clear: Any surplus the state has at the end of a biennium is not because individual taxpayers were over-taxed. They were not. Good economy or bad, individual taxpayers are taxed, each and every one, according to the current rate. No one pays too much. No one “earns” a kicker. When Oregonians receive a kicker check, what they are actually getting is other people’s money! Joe’s kicker check is possible because Bill, Mary, Consuela, Tranh and that woman in the apartment next door got jobs and made more money than the state economist predicted two years ago. The taxes collected by the state were not “too much;” they were simply more than the economist guessed would be collected.

What damn right does Joe have to that money?

After all, the Legislature did not spend that extra money; the Legislature spent the money it thought it would have — based on the guess of the state economist (who we now know, two years later, was wrong). The surplus may be unexpected, but it was rightfully collected — and it was not collected from Joe. Any surplus in state taxes does not belong to individual taxpayers because not one of them paid too much in taxes. If the economist had guessed correctly that the state would have an extra $1 billion dollars because the economy was going to prosper in the coming two years, then the Legislature would have spent that money. Duh. If nothing else, they would have invested in needed infrastructure — bridges, schools, etc — or put some into a rainy day fund in case, oh for example, the unregulated “free” financial markets collapsed and nearly destroyed the American economy.

So when you think about “your” kicker check, remember this: the money you are demanding does not belong to you. If you pay too much in taxes, you get that back when you file your returns in April. That is the only “excess” to which you are entitled. When you get a kicker check, you are getting money earned by other taxpayers who did better than expected over the past two years.

Your kicker is other people’s money.

Shame on you for claiming that money as your right.

T.A. Barnhart writes regularly at tabarnhart.net where he's now doing a lot of videojournalism. And he’s on Facebook a lot!

Comments

  • (Show?)

    "They took the right amount of your money. They always do."

    That depends on perspective, and the size and scope in which a person believes government should function. (One could argue that the boom years before the bubble bust wasn't real money, but inflated money. Of course, the abnormal economic incline sure didn't stop Salem from increasing budgets and spending more [the fault of D's and R's].)

    This notion that it was always the "right amount of money" is misleading, especially when you consider the kicker always equaled a surplus (and it's not as if the state lost out, still keeping the allowed 2%). The law was put in place mainly because voters felt it was a good way to restrain state spending. (Just because government has a certain amount of money, doesn't always mean it spends it correctly or wisely.)

    And to suggest that the kicker money isn't "your money" is ludicrous. I earned that money, not the state. The state gets to tax me because I work, not because the state deserves it. I gladly pay taxes for all the benefits and services I receive as a citizen. But I think it's absolutely insidious to somehow suggest it's not my money.

    We could argue back and forth about the merits of the kicker law. But in my mind, this points to a bigger issue: our tax and revenue structure. If Oregon actually had an equitable and (at least somewhat efficient) means of collecting revenue, then this conversation wouldn't be necessary.

    I'm excited and optimistic about Kitzhaber's budget plan, and his eagerness to reform and restructure how the state operates. Hopefully, the legislature has the political will to make real concrete changes that doesn't force us to have silly debates about kickers.

    • (Show?)

      The only way to have a "silly debate" about the kicker is when someone says it's a good idea and worth keeping. If everyone was serious about this subject, we'd have dumped this idiotic policy years ago -- or simply never implemented it in the first place.

    • (Show?)

      With respect to the argument that the kicker restrains state spending, wouldn't putting the money into a rainy day fund (with rules prohibiting arbitrary withdrawals) serve the purpose just as well?

      • (Show?)

        As far as restraint, yes.

        Beyond that though, it would also serve Oregonians better tremendously since it would mean we would have reserves built up to use when revenues take a hit in a down-economic cycle, which is when the needs for public services go peak.

        The counter-cyclical aspect of channeling the kicker into a rainy-day fund would be huge as far as helping reach stabilized funding for things like schools, etc.

        I would go one better and have those rainy days funds be deposits as part of the capitalization of an Oregon State bank.

        In turn, an OSB could help the state self-finance state projects (saving taxpayers a lot of money). Project which spur job growth/creation, particularly in hard hit sectors like construction.

        • (Show?)

          In order to reform the kicker, we'd need at least some Republicans on board -- probably enough for a constitutional revision (2/3rds of both houses).

          One way to sell at least some Republicans on kicker reform/repeal might to be package it with a general fund spending limit. I'm not thinking TABOR, which uses population growth x inflation and does not take into account economic growth or increased costs of things like fuel and health care. Instead, it should be a spending limit based on reasonable projections from historic long-term revenue growth. Something that will let spending grow at a steady, predictable rate over the long term while enforcing fiscal discipline on a year-to-year basis.

          In years when Oregon gets a surge in revenue, the state could spend only some of it (up to the spending cap), and bank the rest. In years when revenue is down, spending can continue to slowly increase (per the long-term growth trends) and the state can draw from the rainy day fund to make up the difference between actual revenue and the spending cap.

          A rainy day fund plus a reasonable spending limit could make Oregon's income tax a very stable revenue source over the long term, no matter how much it fluctuates from year to year.

          And I agree: an Oregon State Bank would be a great place to store the rainy day fund. Put the surplus to good use while it's there.

          • (Show?)

            There is a perception among many that when the economy is good and revenue is plentiful that the gov't goes on a spending spree on things of dubious value, just to spend the money.

            If there were a proposal for a reasonable spending cap, at a minimum you would force Republicans to vote against controlling state spending.

            If it were to pass w/ kicker reform, then all the better for Oregon.

            Don't you get a feeling in your gut that kicker reform(RDF creation)/spending caps and OSB could be the right medicine for our economic woes? I sure am getting there.

            • (Show?)

              Regarding the cap on spending and/or limiting withdrawals from the RDF, it's more then just a sweetener. There will always be a worthy proposal, program, or investment that doesn't make the cut for a given budget. It is hard to walk away from such a project when there is money on the table in the form of that year's RDF contribution or an RDF withdrawal.

              That's where an imposed restraint comes in- otherwise saving money for a future unknown will probably lose against something that provides specific benefits now.

  • (Show?)

    Until our tax and revenue systems are reformed, I'm not in favor of repealing the kicker. I do, however, favor reforms such as the kicker law only applying mainly to working families with wages below $100,000 per year. I don't see the need for the wealthy, or large corporations to get kicker checks, especially in good economic times.

  • (Show?)

    The conversation about the kicker may have greater seriousness in the coming year when neighborhood schools are trashed, when college tuition dramatically increases, when public safety is cut back, when public parks are closed, when highways don't get fixed, and when older adults and disabled are tossed from care centers. Until then the popular idea that government is filled with fat that can be cut will continue to have play.

  • (Show?)

    T. A Barnhart writes: "The number of taxpayers does not affect the rate at which taxpayers are taxed. One taxpayer, twenty, twenty thousand, two million — the rates remain constant until changed by law. And then they are changed for everyone."

    Tell that to "the rich" under Measure 66.

    • (Show?)

      I agree. Though I would suggest "reforming" it in such a way that it "kicks" into a real rainy day fund, to be used to offset declines in revenue and simultaneous increase in service demands when hit an to be used in down-cycle economic periods.

      • (Show?)

        Absolutely. And once the RDF is full(there would have to be some kind of cap I would think) all extra funds could be funneled into a OSB(like you suggested). Keep the funds in Oregon and working towards creating jobs.

        • (Show?)

          I'd also consider putting surplus revenues into permanent endowments for state universities once the RDF is full. Have an extra $100 million this year? Put it into a permanent scholarship fund (at 5%, that's $5 million in annual scholarships for Oregonians forever). Or how about 20 endowed chairs at state universities at $5 million each? $250,000 per year for each chair -- Oregon could compete globally for top teaching talent. Or how about building a new engineering school? Or permanent "off-budget" operations funding for university libraries?

          Point is, we could invest surpluses in "gifts that keep on giving" for higher education in good years, and that will pay off forever.

          • (Show?)

            Agreed. Although I would suggest limiting the funding to 2-3 critical goals for the first 7-10 years. Economic development/Education seem like obvious choices.

  • (Show?)

    The logical thing to do is to use unexpected revenue to fill up a Rainy Day Fund to a meaningful level. That level can be debated but is somewhere around 15% of the state budget according to analysis of the impact of historical recessions. I think OCPP puts it a bit higher to 18-20%. But that's the ballpark we're looking at.

    But I would argue that there should also be a more systematic way to put money into the RDF, and not just rely on the kicker. When the going is good, don't spend all the expected revenue, but put some aside in savings in the RDF.

    Combining these two approaches, we can stabilize the impact of recessions on the state budget.

  • (Show?)

    Your headline has more truth than you may realize. The way the kicker works is that when it 'kicks' refunds are made for the year in question, but not for the two year term that the budget and forecast were based upon. That means that if a taxpayer has a big income in the first year, but not in the second, they will not get an equal % of the overage they paid in the first year. It assumes that everyone pays the same amount of taxes each year.

    • (Show?)

      Aw man, thanks John. Those of us who work in politics regularly have big incomes followed by small incomes followed by big incomes, etc.

  • (Show?)

    What is really sad about this is.. The writer and all supporters of abolishing the kicker will never admit is..

    The VOTERS in the State of Oregon approved the measure for the kicker at a rate of 62%. You might be screaming and kicking about it all you want.. but the fact remains, its law.

    Saying that the money given back by the kicker is Others people money is basically saying that you believe that the State of Oregon is entitled to keep any and all money it takes in. Heck.. you might as well state that there is no refund given to anyone paying income tax in Oregon.. After all.. its other peoples money when its taken in by the Department of Revenue.

    Looking back in the history of state spending over the last 26 or so years since the first kicker refund was paid out.. that appetite will NEVER be satisfied. How can the "others" people money debate begin without a control on spending by the state...

    • (Show?)

      Oh, so the kicker helps stop overspending? In the next breath you say that since we've had the kicker we've overspent. Guess it doesn't control spending, does it?

    • (Show?)

      and now i'm asking the voters, and those they elect to represent them, to reconsider in light of our experience with the kicker. it was a bad idea and little more than an easy political stunt. same with M5, M11 and other measures that were bad policy but "good" politics.

      the political equivalent of a Charlie Sheen weekend. time for rehab and a new lifestyle.

  • (Show?)

    Kick the Kicker, to the curb.

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