Economic forecast: Oregon will have nearly $100M more revenue despite federal tax reform
Connor Radnovich
Oregon lawmakers will have nearly $100 million more than expected this biennium, according to a new economic forecast, because of higher personal tax returns, additional lottery resources and an end-of-year carry over from 2017.
This is all despite federal tax reforms signed into law in December that likely will drag on the economy in the short term, said state economist Mark McMullen.
In his testimony to the Senate Committee on Finance and Revenue, McMullen cautioned lawmakers that there is still much unknown about how the tax reform will impact Oregon's revenue in the short and long terms.
The state's first glimpse of solid impact might not come until fall of 2019 when corporations revise their 2018 tax filings.
“(Forecasts) are always extremely uncertain," McMullen told the committee. "This is even taking it to another level."
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Compared to the Office of Economic Analysis' forecast from December, general fund dollars are forecasted to rise $69.8 million thanks to a starting balance that's $102.2 million higher than expected. That offsets a $33.1 million net drop in revenue received due to fewer expected corporate tax dollars.
Lottery funds are also up $29.3 million.
Earlier analysis done by the Legislative Revenue Office estimated that Oregon would lose $217 million in tax revenue this biennium because of the recent federal tax reforms, but that office only studies statutory changes. The state economist's office factors in other activities, including behavioral changes from players within the economy.
"Many of these behavioral responses, including the macroeconomic effects, will serve to mute the impact of (the Tax Cuts and Jobs Act) on Oregon General Fund collections," the forecast reads.
Much of the loss estimated by the Legislative Revenue Office comes from repatriation, which is actually a revenue boost in most states.
A quirk in Oregon's tax law permits corporations repatriating money back to the United States from overseas to take double deductions, meaning under current law Oregon would lose around $100 million.
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The Oregon Senate has already passed a bill that would turn that $100 million loss into a $140 million gain, giving the state even more money to play with this biennium.
Senate Bill 1529 passed without a vote against, though Republican lawmakers and lobbyists are looking to make changes to the bill as it goes through committee in the House.
The other relevant bill, Senate Bill 1528, determines other ways in which Oregon will connect with or disconnect from federal tax policy. It also makes some changes at the state level.
In its current form it would turn a $200 million revenue loss into a $120 million revenue loss. The revenue aspect, as well as the expected revenue from Friday's forecast, are less important than making sensible policies, said Sen. Mark Hass, D-Beaverton.
He said addressing the volatility created by Oregon's tax policies is a bigger concern, and the federal changes didn't help the situation.
"We have a lot of work to do on the policy," Hass said.
Hass is the chairman of the Senate Committee on Finance and Revenue, the committee that will rework Senate Bill 1528 after the Senate nearly voted on it this week.
He said the bill might be back out of committee on Tuesday, though the form it will take is still very much up for debate.
After the forecast's release, Senate Republican Leader Jackie Winters, R-Salem, questioned its necessity all together.
"This revenue forecast shows that Oregon's economy continues to prosper, eliminating the need for any new revenue package during this 35-day short session," she said.
Meanwhile, House Democratic Leader Rep. Jennifer Williamson, D-Portland, characterized the forecast as a good news, bad news situation.
On one hand, she said, the forecast shows that Oregon's economy is strong and the budget is stable. On the other, there are still structural imbalances to the state's revenue streams and unpredictability marks the horizon.
"The sweeping federal tax plan that Congress pushed through last year is creating deep uncertainty in our current budget numbers and upcoming forecasts," Williamson said.
Looking to future bienniums, the forecast anticipates a decline in gross revenue because of fewer personal tax dollars outstripping the corporate tax increase.
In 2019-2021, the state estimates it will bring in $96.3 million less than previously expected and in 2021-2023 that number is $84.3 million.
Declines of $184.1 million and $266.3 million, respectively, in personal tax revenue drive the lower figures. This is due to federal tax reform, but also the recent downturn in the stock market. Because Oregon doesn't have sales tax, McMullen said the state's budget is more susceptible to fluctuations in equity markets, so the recent correction is factored in to a greater extent.
This trend of lower review is estimated to flip in 2023-2025 with $54.6 million more coming into the state because some personal tax changes in the federal tax reform law are temporary and might expire.
Contact the reporter at cradnovich@statesmanjournal.com or