Brisk wage and employment growth in Oregon are generating record state revenues that could send an unprecedented $3.4 billion back to taxpayers in 2024, the state’s latest economic forecast said.
At the same time, the state’s Office of Economic Analysis said the chance of a recession is a “coin flip.”
“The outlook is essentially a coin flip between the soft landing and a recession,” the office said. “For now, our office is keeping the baseline, or most probable outlook, as the soft landing and continued economic expansion.”
In its forecast this spring, the office predicted that Oregon taxpayers would receive a $3 billion kicker in 2024. The state issues personal income tax rebates – a kicker – every two years when the revenues collected exceed official projections by 2%. Wednesday’s forecast, which analyzed current economic conditions and estimated state revenues through the current two-year budget cycle, which ends June 30, 2023, said the next “kicker” could reach $3.4 billion.
Taxpayers would get the refund as a credit when they file their tax return in 2024. How much a taxpayer would get depends on how much tax they paid. The median – or midpoint — rebate would be $700 to $800, said Josh Lerner, an economist with the economic analysis office.
That’s nearly double what taxpayers received this year. The personal income kicker this year totaled $1.9 billion.
Kickers are also calculated on business revenue. The forecast predicts the corporate tax kicker would total $1.1 billion in 2024, up from this spring’s forecast of $931 million. Businesses don’t get that money back, however. The corporate kicker is kept by the government and used for educational spending.
But at some point during the next couple of years, Oregon’s economy will sag as consumer spending and employment growth sour, the forecast warned. Just when and how severe that downturn would be remains a matter of debate, the forecast said.
The economic analysis office said the risk of recession remains “uncomfortably high.”
Rising inflation can drive a recession. Forecasters said if inflation persists, Oregon could experience a recession by the third quarter of 2023, prompting job losses, income stagnation and weakened consumer spending and corporate profits.
If that happened, it would have a big impact on the state, the forecast said.
“The potential recession would weigh heavily on (state) revenues over the next several years,” the forecast said.
But Oregon also could experience a soft economic landing, the forecast said.
For now, government revenues remain flush.
“Growth in Oregon’s primary revenue instruments continues to outstrip expectations,” the forecast said. “Both personal and corporate tax collections remain strong in keeping with income gains seen in the underlying economy.”
Democrats were quick to laud the forecast, saying it validated their policies and public spending programs.
Sen. Rob Wagner, D-Lake Oswego and state Senate majority leader, said: “Oregon’s economy is still strong. Oregon Senate Democrats’ investments in housing, education and child care are showing results.”
He did not give any details, but under Democratic leadership and amid a booming economy, the state Legislature has allocated millions of extra dollars for health care, housing and other programs.
State House Majority Leader Rep. Julie Fahey, D-Eugene, also commented on the forecast. “Today’s revenue forecast demonstrates steady growth in our economy and shows why we must continue to invest in working and low-income Oregonians, as well as small businesses,” Fahey said. “That means focusing our investments on driving down the cost of living, addressing the ongoing affordable housing crisis, creating stronger schools, improving our child care infrastructure, and supporting small businesses.”
Gov. Kate Brown also commented: “With rising costs of living continuing to impact Oregon families and businesses, the Legislature can, in the budget for the next biennium, build on the investments we made in the last session––particularly in housing, workforce development, behavioral health, and child care.”
The forecast said Oregon’s government revenues and strong economic activity are being driven by a range of factors.
“Although growth in labor income has been very strong, much of the 2022 flood of personal income tax collections (by the state) can be traced to nonwage forms of income,” the forecast said. Nonwage income includes business and rental income, dividends, capital gains and retirement account withdrawals.
“As tax returns for high-income extension filers are now beginning to trickle in, this growth in business and investment income is revealed to be stronger by the day,” forecasters said.
Households not only have enjoyed wage increases, but they also have accumulated savings from earlier in the pandemic while debt has stayed below historic trends, the forecast said.
“Consumers really have no shortage of firepower if they want to spend and are not worried about potential job losses in the future,” the forecast said.
Oregon’s public policies play an important role in inflation, the forecast said.
Many workplace labor contracts are loosely tied to inflation, and higher inflation “may lead to larger wage increases for public workers moving forward,” it said.
Oregon’s minimum wage has been ratcheted up in recent years in a series of bumps, and starting in 2023 will be tied to the consumer price index, which will rise with inflation. The index tracks the cost of goods and services. The forecast anticipates the minimum wage will rise 5% effective July 1.
Oregon’s rent stabilization law will likely allow rent increases in 2023 of about 14%, the forecast said.
Oregon’s unemployment rate, now at about 4%, will likely rise to about 4.6% by late 2024, the forecast said. “This is what a soft landing would look like,” the forecast said.
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