Oregon’s predicted 2024 kicker rebate grows to $5.5 billion as tax revenues outstrip economists’ predictions

Oregon’s tax revenues have continued to outstrip state economists’ predictions, with nearly $1.9 billion more in tax receipts now expected in the current budget cycle that ends in June.

The surge in anticipated tax receipts will also likely trigger a big increase in the state’s unique “kicker” tax rebate that taxpayers would receive when they file their taxes next year: $5.5 billion, up from a predicted kicker of $3.9 billion at the last forecast just three months ago, according to economists’ presentation to state lawmakers on Wednesday.

“Available resources are up sharply, not just today but in the foreseeable future,” said state economist Mark McMullen.

Economists warned last year that Oregon could enter a mild recession sometime this year. Still, Oregon received $310 million more than anticipated in personal income tax payments in the first quarter of the year. On top of that, McMullen said he and fellow state economist Josh Lehner made methodological adjustments to their forecasting model to better account for inflation and the state’s personal income tax brackets. Those changes boosted the state’s revenue outlook.

“It’s not that the recession risks aren’t real,” Lehner said. But there are signs that inflation could be slowing and the Federal Reserve is reconsidering continued increases in interest rates “which would have sent the economy into recession at some point,” Lehner said. Economists are “still very concerned about recession risk” but the risk appears to be farther out, perhaps not until 2024, he said.

Economists’ ability to accurately predict the state’s future revenues can have a major impact on the state budget, because of the kicker tax rebate. The rebate is triggered when tax revenues for a biennium come in more than 2% above economists’ forecast from the start of the budget cycle. The state must return the full amount above the forecast to taxpayers.

The higher-than-expected tax receipts and revenue forecast could clear the way for the Democratically controlled Legislature to boost spending in the next two-year budget, which they have until June 25 to pass.

In March, Ways and Means Committee co-chairs Sen. Elizabeth Steiner and Rep. Tawna Sanchez, both Democrats from Portland, proposed a budget that would increase state spending moderately from the current level, $29.2 billion, to $30.4 billion for 2023-2025. They noted the state budget has grown significantly in recent years, boosted by windfall revenues and federal pandemic funding.

This is a breaking news story and will be updated.

— Hillary Borrud; hborrud@oregonian.com; 503-294-4034; @hborrud