Oregon economists predict nearly $1 billion kicker tax credit in 2026

Oregon economists estimate taxpayers could see a nearly $1 billion kicker in 2026 — up from an earlier forecast of $582 million — based on the September revenue forecast presented to state lawmakers Wednesday morning.

“From an economic perspective we’re doing as well as we could have hoped for,” said acting chief economist Josh Lehner.

The Legislature in 1979 passed a 2% kicker law and voters approved it in 1980, requiring the state to refund surplus revenues to taxpayers when actual revenues exceed forecasted revenues by more than 2%. Oregonians this year received part of a record-breaking $5.6 billion kicker state tax credit when they filed their 2023 tax returns.

Inflationary economic boom cooling

The House and Senate Revenue Committee discussion Wednesday focused on a stable economic forecast despite concerns about a slowing labor market.

Lehner said the inflationary economic boom is cooling and interest rate cuts should be expected. He also talked about a rise in unemployment at a national level due to a cooler labor market with slower hiring.

In general, the economic forecast looks stable, according to the OEA. State revenues continue to outpace expectations, thanks in part to personal and corporate income taxes and consumption-based revenues meeting expectations.

“The number of returns is drastically higher than expected,” Lehner told lawmakers.

Total personal income tax collections increased by 3% in 2023. Revenue uncertainty remains high with personal income tax extension filers to come in the fall and another tax season in April, the report said.

Oregon's revised economic forecast

According to the revenue forecast, the state’s general fund for the current 2023-35 biennium will see a $676 million increase compared to the May forecast. For the 2025-27 biennium, economists are revising their estimate to lower available resources by $66 million due in part to the personal kicker being paid out.

Reserves remain sizable, too. Economists predict the education stability fund will hit its statutory cap in the 2027 fiscal year. The Oregon Rainy Day Fund is expected to be nearly $1.9 billion at the end of the biennium. Combined with the projected ending general fund balance of 1.8 billion and the Education Stability Fund of $1 billion, Oregon’s total effective reserves are projected to be $4.7 billion at the end of the 2023-25 biennium.

“It is encouraging to see that our economy continues to be stable, with healthy workforce participation in key sectors,” Gov. Tina Kotek said in a statement. “The forecast urges an emphasis on core programs and holding our ground on Oregonians’ top priorities.”

Oregon legislators call for prudent spending

Lawmakers celebrated the stable forecast while calling for careful spending in future sessions.

Senate President Rob Wagner, D-Lake Oswego, and Senate Republican Leader Daniel Bonham, R-The Dalles, both issued cautious statements.

“This forecast is another clear warning that we must exercise fiscal restraint,” Bonham said, pointing to inflation pressure and rising costs

Wagner said: “We must remember that we have limited resources. Legislators must come into the 2025 legislative session prepared to make tough decisions about which programs, services, and projects we fund and ensure those decisions are consistent with the values of Oregonians."

House Speaker Julie Fahey, D-Eugene, said the state needed to “remain prudent” in its use of taxpayer dollars and said lawmakers needed to focus on passing a transportation package during the 2025 legislative package to “keep our economy moving.”

House Republican Leader Jeff Helfrich, R-Hood River, said the forecast showed inflation staying higher and private industries struggling while the government expanded.

“Many in the current majority will call for new taxes next session, which will make these problems worse,” Helfrich said. “The legislature should resist the push for new taxes both to ease the cost burden for families and to unleash Oregon’s private sector potential.”

Longtime chief state economist Mark McMullen left the role in May. Lehner said Wednesday he is leaving the Office of Economic Analysis in September after 15 years. A new chief economist is expected to start in September.

Dianne Lugo covers the Oregon Legislature and equity issues. Reach her at dlugo@statesmanjournal.com or on X @DianneLugo

This article originally appeared on Salem Statesman Journal: Oregon economists predict nearly $1 billion kicker tax credit in 2026