Oregon income levels remain strong despite worries about a potential recession and that has pushed state economists’ expectations for tax revenues up yet again, in the latest forecast they delivered to lawmakers on Wednesday.
One likely upshot is that taxpayers will receive an even larger “kicker” tax rebate on their 2023 taxes when they file returns in 2024: $3.7 billion total, up from $3.5 billion just three months ago.
At the same time, economists Mark McMullen and Josh Lehner said they now believe it’s more likely Oregon will experience a recession in the near future. They incorporated a recession starting next year in their revenue and economic forecasts. “It’s rather mild from a historical perspective,” McMullen said of the recession the state economists included in their modelling.
Oregon lawmakers will start working on the next two-year budget in a couple of months and economists had already predicted months ago that lawmakers would have approximately $3 billion less in revenue compared to the current budget cycle. That is because economists expected the state’s long run of windfall tax revenues, which was fueled in part by federal pandemic stimulus programs and upper income Oregonians cashing out capital gains, to slow down. In 2021, Oregon tax filers reported 77.9% more capital gains income than in the previous year. By contrast, tax filers’ reported wage income only grew 5.8% in 2021, according to the Oregon Office of Economic Analysis. “2021 was a great time to cash in your stocks or sell your business or the like,” McMullen said.
Oregon’s current two-year general fund and lottery budget is $29.3 billion, according to the Legislative Fiscal Office. For the 2023-2025 budget cycle, state economists currently expect lawmakers to have $30.7 billion in general fund and lottery money to allocate. “It’s going to make it more difficult to write the budget,” McMullen said.
The state is also on track to have $2 billion saved up in a general rainy day fund and a specific account for “education stability,” Lehner said. However, lawmakers can only appropriate money from the savings accounts by a three-fifths vote and that will require bipartisan support next year because Republicans picked up enough seats this month to eliminate Democrats’ state House and Senate supermajorities.
— Hillary Borrud; email@example.com; @hborrud