Today, Oregon lawmakers once again received news that government revenues are continuing to boom, adding nearly $4 billion in total resources since the end of the last long session in 2021. In the latest revenue forecast, lawmakers were told to expect $427 million in combined new resources since the March forecast to spend during the 2023 session. Additionally, personal income taxpayers throughout the state will receive another historically high kicker credit of $3 billion.
Although jobs, incomes, spending, and production are rising quickly, the economists attributed the astronomical tax collections to taxpayer behavior more than anything else. In late 2021, with equity markets surging and the threat of potential federal tax increases, capital gains collections grew by more than double the increase in overall income.
Considering the driver of the booming revenues is primarily nonwage income, the economists believe the current surge in tax payments to be temporary, and revenues will return to earth in due time. Oregon’s revenue stream relies heavily on income taxes, and, more specifically, the income taxes paid by high-income households, so a change in taxpayer behavior moving forward could produce sharp declines in tax revenues in future years.
Oregon’s corporate taxes are also outperforming expectations, which stands in stark contrast to past cycles when business taxes plummeted. In fact, corporate income tax collections are higher than at any other point in state history, contributing nearly $2.3 billion to the state’s general fund. Today, corporate collections have more than doubled over the last two budget cycles.
These high corporate income tax returns are anticipated to trigger a corporate kicker of $931 million. However, unlike the personal income tax kicker, the corporate kicker is directed to additional funding for K-12 schools.
The economists were generally optimistic that a steep recession is unlikely in the near term. However, they do expect the state’s surging revenues to cool in the next budget cycle. If the inflationary boom continues, the Federal Reserve may raise interest rates more aggressively and send the economy back into recession. In this scenario, Oregon would face a moderate recession, losing 100,000 jobs and experience a nine percent unemployment rate, with growth resuming in early 2025. While the mere mention of a recession sounds bad, the scenario outlined by economists is much milder than the doomsday predictions that surfaced at the beginning of the pandemic.