Kicker reform, Rainy Day Fund & Capital Gains cuts: an unholy alliance

T.A. Barnhart

One of the major goals of the 2011 legislative session, from the Governor to the Legislature to interest groups, was kicker reform that built up, as Kitz always calls is, a “robust” rainy day fund. Senate President Peter Courtney formed a special committee on Finance and Revenue with two Dems and 2 Rs — true bipartisanship, as it were — to spearhead the effort. The effort received support from groups as diverse as AOI and public sector unions, and appeared to be sailing along. The committee sent their proposal to the Senate with a recommendation it be passed.

And President Courtney immediately buried the bill in the Senate Rules Committee.

What the hell happened to this critical priority?

The problem is not the kicker reform, although that is problematic and would require a strong campaign to get voters to adopt it in 2012. The rainy day fund isn’t the problem; everyone knows the state desperately needs a reserve fund that can get us through extended economic downturns like the one we are still working our way out of. Diverting a portion of the kicker into a rainy day fund is smart policy and possibly winnable politics

But it’s not the culprit.

The Senate Finance and Revenue Committee made a strategic calculation as it worked its way to a final decision on how to structure these reforms: to get the support of Republicans and the business community, in addition to kicker reform they would also propose a capital gains cut.

A permanent, extensive capital gains cut.

At an amount nearly equal to what the rainy day fund would hold.

Guess what kind of support that got from Democrats? House Dems Leader Dave Hunt said, on the morning before the committee took its vote, that he opposed their proposal. That apparently was enough for Courtney to move the process off the mainline and on to a sidetrack.

Where it resides today.

The video is an interview I did with Jodie Wiser of Tax Fairness Oregon after the Finance & Revenue Committee voted to move their package — kicker reform and capital gains cuts — to the Senate floor. She explains the objections to including capital gains cuts in this “deal”. And she raises a good question with her final point: Why? (You gotta listen to know the “what” of that “why”.)

Bottom line: I can understand Senators Morse and Telfer pushing capital gains cuts; belief in the magic of these cuts is unchallenged GOP and corporate doctrine. But for Co-chair Ginny Burdick and fellow Dem Mark Hass to go along — as I stated above, this was clearly a strategic assessment on their part. A very bad assessment. While the proposal would undoubtedly pass the Senate easily, it was a non-starter in the House. A capital gains cut of this magnitude, and locked to the rainy day fund, was never something House Dems would support. Unfortunately, this was a reality Burdick, Hass and Courtney did not appear to accept until it was too late.

And now one of the most important tasks of the 2011 Legislature, establishment of a real Rainy Day Fund, may be dead.


Breaking! after the jump.

Peter Wong of the StatesmanJournal reports on a new development:

House Democrats proposed alternatives to "kicker" reform Thursday that still would result in rebates of excess income-tax collections to individuals and small businesses. But their proposals, subject to voter approval, would cap the amounts returned to individuals — and businesses would be treated differently.

Reps Phil Barnhart and Jules Bailey, Co-chair and Co-vice chair of the House Revenue Committee, have proposed HJRs 47 & 48; these would cap the kicker and set up the Rainy Day Fund. Voter approval, of course, would be required. Wong notes that, like the Senate proposal, these are unlikely to make it through this session and are more likely to be a part of the 2012 session.

This report and video are the work of T.A. Barnhart as part of "The Action TAB" project, which is providing an on-going video report of the 2011 Legislature. "The Action TAB" was funded by progressives via More video reports can be found at and The Action TAB's Facebook page.

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    T.A., Thanks for this excellent video and for all your video work at the legislature. And Jody, thank you for your steadfast support of Oregon taxpayers against these schemes to further enrich the 1-percent of our population. I know the halls of the Capitol are crawling with their richly rewarded lobbyists and so I'm really glad that you, and others like you, volunteers, are there too.

    I hope voters will soon figure out that our budget crisis has created a zero-sum game. More tax credits for the rich or for private businesses like SoloPower mean less money for schools, state police, and all the rest of what makes our everyday lives possible. Keep up the good work!

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    Great post T.A.! Another point is that asking voters to give up their kicker check so the rich could get a massive tax break would have been a non-starter with Oregonians—no doubt such a ballot measure would have gone down in flames!

    That is why I am so excited that Oregon House Democrats are proposing a progressive plan to create a Rainy Day Fund!

    This proposal is both better from a policy AND political perspective.

    It might not happen overnight, but there is now a path to bold reforms that will help bring balance to Oregon’s roller-coaster budgets.

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    what Bailey, Barnhart et al have done appears tobe what the Sen Ctte should have done. i think the "upper chamber" folks got a little too clever & strategic; the House group decided to go with good policy. not surprising from my Rep, Jules Bailey, in the mix.

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    In the last two recessions, the cuts to education and the Oregon Health Plan have been terrible. We must establish a better savings account for the state so the next recession is not as tough as the last two on important public services.

    We Democrats had supermajorities in 2009 and our representatives could have referred our preferred kicker reform to voters and chose not to. Now we lost the supermajorities and the House is tied, so if we want kicker reform and a sufficient rainy day fund, there's going to have to be some compromise. I'm not thrilled about capital gains tax cuts either, but realistically how is kicker reform going to pass the House without Republican votes? At this point, it seems like the question needs to be what are Democrats prepared to give up to get kicker reform through the legislature in a package that has a reasonable chance at being approved by the voters?

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      Brian, it does not matter if this gets on the ballot if in the end voters reject the ballot measure. In fact, if the Senate proposal were to go to the voters it would fail by a wide margin and kill kicker reform for another decade.

      We need a kicker reform bill that can win—if that takes a few more years, so be it.

      P.S. You are correct about the Dems dropping the ball on this; I think this is why progressives need to start to get more involved in primaries and support candidates who will challenge the status quo.

      We should not just the party select candidates based on how many partners from Perkins Coie they have in their Rolodex.

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        Noah, I do not believe ANY change in the kicker will fly if there isn't a HUGE push to educate voters. Just consider the heated comments on news sites about changing it back to a credit on the return. A majority didn't get 1) how it works to start with nor 2)that they had NOT "lost" the kicker nor had the law been changed or weakened. And they were suspicious about the motives around the change. This is regardless of the fact that one of the bills sponsors posted detailed explanations. Taxes in general ~ and this subject in particular ~ are emotional. And no matter how pragmatic and factual you are in explaining, some folks will NEVER get it.

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      But the Senate proposal would have passed out more in capital gains cuts than it would have brought in through kicker reform. A targetted tax break for investments made in Oregon businesses in the future would be ok. Another idea is to forget about kicker reform and build up our rainy day account by putting all capital gains income into the rainy day fund. Rep. Read and Senator Hass had a bill to do that this session.

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    here is the Press Release from the House Dems on these bills

    Kicker Reform Proposals Filed By Democratic Representatives Most Oregonians would get the same amount back as previously

    SALEM – A group of Democratic Representatives today proposed kicker reform legislation that would ensure most Oregonians and many small businesses would still get their entire kicker back. The bills propose two alternatives to kicker reform that would direct significant dollars into a constitutionally-protected Rainy Day Fund.

    House Joint Resolution 47 (and its companion bill HB 3681) and HJR 48 were filed Thursday morning by Representatives Phil Barnhart, Chris Garrett, Tobias Read and Jules Bailey. A number of other House Democrats signed on as co-sponsors. Both bills would direct the dollars not returned to taxpayers into a constitutionally-protected reserve fund. The bills include triggers that would limit the ability of the Legislature to access those dollars except in times of economic downturns. Both would also require a supermajority vote before the reserve dollars could be spent.

    The bills propose a cap on the amount of kicker dollars returned to individual taxpayers. In HJR 47, the cap is set at $500 ($1000 for joint filers). HJR 48 would place the cap at $250 ($500 for joint filers). Under both scenarios, most Oregonians would have gotten the same amount returned if the law had been in place in 2001 and 2007, the last two times the kicker was returned.

    The bills each treat the corporate kicker differently. HJR 47 returns the kicker for corporations with less than $5 million in Oregon sales. HJR 48 places the entire corporate kicker into the Rainy Day Fund.

    Under the bills, once either 14% or 15% of the current General Fund budget is reached, the entire kicker would once again be returned to individual taxpayers.

    The bills would accomplish three main goals of kicker reform:

    • Protecting the kicker for most Oregonians, • Creating a constitutionally protected Rainy Day Fund, and • Fixing Oregon’s roller coaster revenue stream to prevent deep cuts and tax increases in the future.

    “There are two critical issues at stake here. What can we do to fill up and protect a constitutional reserve fund so that we don’t have huge cuts in schools, health care and public safety or tax increases the next time we face an economic downturn? And what can we do to ensure that those Oregonians who need the money most will still get it back?” said Barnhart (D-Central Lane/Linn Counties). “We believe these proposals succeed on both fronts.”

    The kicker is triggered when actual state revenues from taxes exceed the state’s revenue forecast by more than 2%. In 2007, the last time the kicker was refunded, over $1.1 billion was sent back.

    Because the kicker is constitutionally protected, either of the measures, if passed by the Legislature, would place the proposal to the November 2012 ballot.

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    part 2 of the release

    “These bills are fair. These bills are workable. They accomplish the goal of building a Rainy Day Fund and protecting the kicker for most Oregon taxpayers,” said Garrett (D-Lake Oswego).

    Economists have long argued that reforming the kicker law will lessen the volatility of our tax system as long as the excess dollars are targeted into a reserve fund.

    “We need a constitutionally-protected reserve fund. And we need to find ways to fill it so we can buffer ourselves against the dramatic swings we’ve seen this decade in Oregon’s economy,” said Read (D-Beaverton). “This plan will help us fill our reserve funds for the long run while still providing an economic benefit to individuals and small businesses.”

    Bailey said the kicker refunds are dollars that low and middle income people will put right back into our economy for food, housing and other essentials.

    “This bill gives us the certainty of knowing, just as Oregon families do, that we will save when times are good. And that means we won’t have to choose between raising taxes or making huge cuts in critical services when times are bad,” said Bailey (D-Portland). “This is a common sense and effective way of reducing the fluctuations in our revenue stream… and I think it stands a very good chance of being approved by voters if we can get it on the 2012 ballot.”

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    T.A. - Frank Morse has pushed kicker reform for years without tying it to a capital gains tax cut. I don't think it's accurate to say that the idea for tying the cut to kicker reform originated with any legislator. My impression, based on the Oregonian's reporting is that AOI, OBA, and OBC made their support for kicker reform conditional on it being paired with a capital gains cut.

    My understanding is that this is less about partisan politics than it is about the belief that any attempt to reduce the kicker will face a public referendum, and there is little appetite for taking on that fight unless it is clear that the business community will defend the legislation rather than fund the opposition to it.

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      The business community -- those groups you mention -- doesn't ususally spend much at all on initiatives, and would likely stay silent at least, and maybe support a plain vanilla kicker reform.

      But the legislature isn't going to refer it any time soon. I wish it didn't take so much money to get something like this fairly before the public.

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    I'm glad to see this new effort. My congratulations to Phil Barnhart who lived across the hall in my dorm in college, eons ago. He was an activist in those days and fought the good fight and has never stopped. The Senate Dems really need to make public amends over their epic fail.

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    I think that those Oregonians who would vote against eliminating the kicker might find this latest proposal appealing and for most voters they won't lose a thing, while asking wealthier persons to pay their due to keep schools and essential services going. I think it has a good shot, a much better shot than the hybrid capital gains bill.

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    T.A., the compromise was bad policy for sure. What progressives need to understand is that the average Oregon wage earner will not support messing with the kicker until AFTER elected politicians have shown an appetite for sustained fiscal responsibility.

    Until spending is reigned in, any referendum, initiative or public vote will reject Kicker Reform. The compromise bill, bad policy, was an attempt to line up business in a neutral corner when the vote goes public.

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      Spending, of course has been reigned in. We're in the midst of a long-term disinvestment in public services in Oregon.

      And, predictably, that has led to a generalized sense that the government can't get basic things done.

      This is the GOP strategy in a nutshell: cry about deficits -> force spending cuts -> claim govt is ineffective -> argue for tax cuts -> cry about deficits. Rinse. Repeat.

      The question is: how do we pull out of the nose dive? How do we break out of the budgetary and public opinion downward spirals?

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        Kari, I love your explanation of GOP strategy... cry about deficits -> force spending cuts -> claim govt is ineffective -> argue for tax cuts -> cry about deficits. Rinse. Repeat. ...It does say it in a nutshell! I do believe there is an organized effort to defund government at every level until there is none. Then the average Joe Taxpayer will be screwed, while corps run amok with no no taxes, no regulation and no oversight or accountability.

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        OWIN; Mandatory all-day Kindergarten; no bid personal services contract grossing > $400,000. Kari, I'd hate to see what you characterize as unrestrained spending.

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          Kurt, I certainly didn't say that mistakes don't get made.

          The OWIN fiasco is stupid, for sure.

          Mandatory all-day kindergarten isn't the law yet.

          And I have no idea what that $400k no-bid contract is that you're talking about. Having done some state contracts, I know that the limit is $5k on a no-bid.

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    Ah, Kurt Chapman is back, the guy that wants to hold HS football harmless while massive teacher layoffs proceed on course. At Tualatin HS they were going to cut the golf program, but the courageous school board reinstated golf while there are projected 8-10 teachers are going to be laid off. But the decimation of public schools is something the right wing loves anyway. Let's preserve that kicker while we preserve the football teams and stadiums so your country club pals won't have to pay their due in taxes. Wouldn't want to see those beloved Black Tornadoes have to go without.

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      No excuse for reinstating Golf - period. But before blaming others, how about ask your democrat elected legislators why they won't advance HB 2456 as written and put forward by PERS. Stopping tax true-up for retirees living OUT OF STATE would save Oregon public employers $72 million this biennium and shave $450 million off the $13 billion unfunded liability.

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    Bill, good to hear from you too. I don't think that I have ever been critical to reasonable cuts to HS and Middle School after school sports. I'm sure if I have been you will remind me. I have long been a proponent of 'pay to play' and cuts to HS football paid staff. I've also NEVER been to a Black Tornado football game (or any other HS football game for that matter).

    FWIW, I railed against NMHS putting artifical turf on a PRACTICE football field with left over bond money.

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    Seems to me that if leading Democrats can rally around a single kicker reform plan, there would be the possibility of turning it into a citizen initiative and putting it on the ballot that way. There would be the same political obstacles to passage, but there would be no need to cut a ridiculous bargain on capital gains to get Republican buy-in.

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      i doubt we'll see anything sent to voters out of the Leg, but it would be good to see them agree on one of these kicker reforms & take that one via initiative petition. we've spent the last 20 years playing defense on ballot measures; how sweet it would be to promote something strong & positive.


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