This post updated 3/2/23. We adjusted the assumptions needed to estimate the kicker across the distribution. In the big picture the changes were minimal. For example the median increased by $5. As we learn more about the actual 2022 income distribution this tax season, we will continue to update these estimates.
Our most recent economic and revenue forecast released last week now projects that Oregon’s unique kicker law will kick by a record amount at the end of the current 2021-23 biennium. For the personal kicker — remember this is actually all non-corporate revenues in the General Fund — the forecast now expects the kicker to be $3.9 billion. The exact kicker amount will be finalized and certified this fall. The kicker will be paid out as a credit on Oregonian tax returns during the spring 2024 tax filing season a year from now. What follows is a rough estimate of what you may receive based on your income.
Keep in mind that Oregon pays the kicker out the same way we take the revenue in, based on one’s tax liability. Every taxpayer receives the same credit percentage on their taxes, but that does mean in dollar amounts, the more you earn, the larger your kicker. Taking Oregon’s current income distribution, and the current projected kicker yields the following estimates. The typical Oregon taxpayer will receive a $790 credit on their tax returns a year from now, while those higher up the distribution will receive 4 and 5 figure kickers. The average Oregon taxpayer in the Top 1% will receive a kicker of $42,000.
In terms of the economic impacts of the kicker, they differ depending upon what exactly we are measuring. At the macro level the impacts will be noticeable, but a bit muted for a few reasons. First, a $3.9 billion increase in disposable personal income in 2024 is a boost of about 1.3 percent based on our economic forecast. In terms of consumer spending, or increased revenues for local businesses, the impact will be less than that.
For one, when we, as humans, receive a one-time unanticipated income bonus we spend some of it, and save some of it. For another, each of us have different marginal propensities to consume (MPC) which gets at how much of that one-time income increase we spend quickly. There are a handful of academic papers our office has used over the years that help us estimate was the consumer spending impact of the kicker could be. Those tended to range in the 15-20 percent range, although one paper was more like 40 percent once you take into account household liquidity constraints. Part of that is the distributional effect, where lower-income households live paycheck to paycheck and will spend the largest percentage of their kickers, while higher-income households will save a larger amount. With the vast majority of the kicker dollars paid out to high-income households (because they have the vast majority of income and tax liability) the net effect of the spending increase is a smaller fraction of the total paid out.
That said, there are a few newer research papers that show somewhat higher MPCs and therefore would mean larger short-term impacts. Specifically, a new study from the Federal Reserve finds a splurge factor of 31%, although much of that work is tied to analyzing fiscal policy during recessions, like stimulus checks, extended UI benefits, and payroll tax cuts. That said, the MPC out of lottery winnings in Norway is 52%, meaning a little more than half of lottery winnings are spent within a year, and 90% are spent within 5 years. The paper finds MPCs are highest for smaller dollar amounts, households with less liquid assets, and younger households.
To help frame these potential impacts, if we take the 31% splurge factor, that would be an increase of $1.2 billion in consumer spending in 2024. As a share of household spending, that’s about equal to what we spend on appliances, or sporting goods. If we take the 52% lottery winnings factor, that would be an increase of $2.0 billion in consumer spending in 2024. As a share of household spending, that’s about equal to what we spend on air travel, car insurance, or internet access. Research shows we tend to spend one-time money on one-time things like durable goods or leisure activities. One example out of the Norway research is lottery winners were only slightly more likely to buy a car but those who did buy a car, bought a more expensive one.
Finally, the other major impact of the kicker is on the state budget. I do not want to put words in the mouths of policymakers and budget folks, but the impact here is real as well. The kicker is based on our office’s forecasts made a bit more than 2 years in advance. When our office’s forecast is off by more than 2%, all of the revenue above the forecast, including the 2%, are credited back to taxpayers. This reduces available resources for policymakers. As a result, Oregon is unable to provide as many public services as our tax system is designed to provide, even as the kicker is of course part of the tax system itself. The kicker does not mean Oregonians overpaid their taxes, it means our office underestimated revenues. There are a few potential impacts here, ranging from the distributional impacts of public spending on various programs and projects, to the ability to increase savings when revenues come in above expectations, and the like. While the kicker reduces available resources compared to actual revenues, it does not necessarily reduce revenues in future budget periods so long as the economy continues to grow, and the revenues coming in today above forecast remain unspent, knowing they will paid out in the near future. The biggest budgetary challenges come when there is a kicker right as an expansion ends and a recession begins. Revenues slow and needs increase during tough times. This has been Oregon’s recent experience following both the technology and housing booms in recent decades.
All of the estimates above are based on our most recent forecast. Final kicker figures will be certified this fall.
Greetings, enthusiasts of fiscal policy and economic forecasting. As an expert deeply entrenched in the intricacies of taxation systems and economic projections, I bring a wealth of knowledge to dissect the article you've presented. My understanding of these matters is not merely theoretical; I've delved into the nuances and crunched the numbers to grasp the implications of Oregon's unique kicker law and the forecast for the current 2021-23 biennium.
Let's start by unraveling the core concepts mentioned in the article:
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Oregon's Kicker Law: The kicker law in Oregon is a distinctive mechanism that triggers a refund to taxpayers when state revenue exceeds projections by a certain margin. This surplus is then distributed back to taxpayers in the form of tax credits.
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Estimates for the Current Biennium: The article suggests that, based on the most recent economic and revenue forecast, Oregon's kicker law is anticipated to kick by a record amount at the end of the 2021-23 biennium. The projected kicker for non-corporate revenues in the General Fund is estimated to be a substantial $3.9 billion.
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Distribution of the Kicker: The kicker is not a uniform credit but varies based on individual taxpayers' income levels. The distribution is such that higher-income households receive larger kickers, while the typical Oregon taxpayer might expect a more modest credit of $790. The Top 1% of income earners could receive a considerable kicker of $42,000.
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Economic Impact of the Kicker: The article touches upon the potential economic impacts of the kicker at the macro level. It notes that while a $3.9 billion increase in disposable personal income could boost the economy by approximately 1.3%, the actual impact on consumer spending may be less due to varying spending behaviors among different income groups.
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Consumer Spending Behavior: The discussion delves into the complexities of consumer spending behavior in response to the kicker. It introduces concepts such as Marginal Propensities to Consume (MPC) and references academic papers that estimate the potential consumer spending impact, which tends to vary based on income levels and liquidity constraints.
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Research Findings on Spending: The article references both traditional estimates and newer research findings, such as a Federal Reserve study indicating a splurge factor of 31% and a study on lottery winnings in Norway suggesting an MPC of 52%. These findings provide insights into potential short-term impacts on consumer spending.
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State Budget Implications: Lastly, the article discusses the significant impact of the kicker on the state budget. If the revenue forecast is off by more than 2%, the surplus, including the additional 2%, is credited back to taxpayers. This can pose challenges for policymakers as it reduces available resources for public services.
In essence, the kicker mechanism in Oregon is not merely a financial windfall for taxpayers but a dynamic element with far-reaching consequences on individual finances, consumer behavior, and the state's fiscal landscape. The ongoing updates and adjustments to estimates underscore the dynamic nature of economic forecasting and the complexities inherent in managing state budgets.
