Unique Oregon tax kicker brings unexpected windfall, amid rising debate of long term budget effect

Published by Rachel Arceo on

You may pay less in Oregon state taxes this year, perhaps a lot less, thanks to legislation passed in 1980 called “the kicker.” The kicker is a tax refund that automatically “kicks in” whenever state revenue during Oregon’s two-year budget cycle exceeds the amount of taxes the state expected to receive. The tax revenue must be higher than budget projections by more than 2% for the kicker to activate. 

Although many students lack a large income and a large income tax requirement, many may not be aware that Pell Grants and other scholarships are potentially taxable when used on something other than tuition and supplies.

Oregonians can calculate their own 2021 kicker tax credit through the Oregon Revenue Online government website.
Photo provided by Oregon Revenue Online

For those who do have to pay taxes, unexpected money seems like a good thing, but the benefit of the kicker to Oregon students and the general population is under debate; not everyone agrees whether the kicker itself should continue.

In order to understand the complex debate, first look at the history of this distinct Oregon tax law.

“Oregon has a unique budgeting structure built in our constitution. Our legislature has to do a budget every two years instead of every year; that is why you hear our budget called the biennium. Most states budget a year at a time,” associate professor of business and economics Gary Gray explained over the phone. “It was put into our constitution as a way to make elected official time commitment smaller.”

Oregon tax revenue and the kicker are established into two pots: the corporate and the general fund.  For most Oregonians, the general fund is responsible for that surprise money at the end of certain two-year cycles.  

In 1979 the kicker was first voted in, then by 1985 Oregon saw the first kick. The general fund kicker has since been activated 1991 times and been suspended twice during recession in 199 and 1993. In 2000 Oregon voters moved this tax policy into the state constitution. In 2007 an amendment was created to divert corporate kickers to public education.

So how is this two-year budget forecast decided?

The Oregon governor relies on a couple of state economists to do this budget. The Oregon Center for Public Policy says on their website, “They must predict the behavior of the global, national, and state economies years into the future and then correctly connect that to the revenues generated by millions of Oregonians.” 

Gray said, “It is very difficult to forecast two years of expenses and revenues in a state, but that forecast is what sets our tax rates. That forecast comes out from the state every two years and comes down through all the institutions; everybody forecasts their budgets and that ends up forecasting the tax requirements.” 

State revenue can consist of income from state parks fees, tuition, school fees, hospital charges and lottery revenue. “If the state had a budget surplus, that money has to be returned to the citizens,” said Gray.

The economists get the budget forecast wrong frequently, 12 out of the last 18 budgets, according to an Oregon Center for Public Policy article in 2019. This is part of the controversy with the budget and kicker. “The kicker is not a result of taxpayers overpaying their taxes. Rather, it’s a forecasting error,” the OCPP reported.

Another controversy is that publicly funded institutions, advocates, and politicians would like to use the excess funds to cover their extra or unexpected costs and fix longstanding problems like the underfunded public employees retirement system. 

The debate on this surplus funding is often linked to the states underfunded Oregon Rainy Day Fund, established in 2007. Rainy day funds are state savings accounts, and states have been tapping into them during COVID and to fight inflation. 

“Why are we always fighting cuts? In my opinion it is because of the kicker.  That is the thing that constrains our revenue,” said Les Rogers, UCC’s accessibilities coordinator. Rogers has undergraduate degrees in business and economics and a master’s degree in public policy. “While we are fighting these cuts, Oregon is handing back a $1.9 billion kicker. It’s a huge two billion dollar windfall that could do a lot to backfill all these cuts.”

Rogers is not alone in his viewpoint. According to an article from the OCPP, “The kicker undermines stability by making it more difficult for Oregon to save for a rainy day. The kicker makes important public services such as education, public safety, and health care, vulnerable to economic downturns.” 

On the other hand, others say that there is no guarantee that the windfall, even if put into the rainy day fund, would go to things like public education.  

“There are state politicians that make the argument that if we held on to the kicker money we can give to agencies that need it. First, we are not allowed to by law,” Gray said. “Secondly there is no guarantee that money would go to colleges.”

What isn’t in debate through this controversy is that Oregon’s education is underfunded and stressed. The funding problems have been getting worse through the pandemic. The public K-12 system, which has a direct effect on both future and current college students, has been facing tremendous staff shortages. In an article in Education Week article based on recent US Census Bureau data,” Oregon was recently ranked in the bottom third in per person spending for education.

So does the Oregon tax kicker have any effect on the ever-rising cost of tuition? Some believe it does indirectly, but Gray assures that these are separate issues. 

“There is no connection between the return of excess tax dollars and the tuition at the community colleges,” said Gray.  He explained tuition costs across the state are set by individual college boards of education based on budget forecast by the state for community colleges.

The fact remains that the kicker is part of the Oregon constitution and unless that changes Oregon taxpayers still get the benefit of this windfall.

“We can have a long conversation about whether it is working or not, but that’s just constitutionally where we are,” Gray said.

Contact me at:

For more articles by Rachel Arceo, please click here.