Kicking Our Own Ass 

Forced Tax Refunds Play Havoc with Oregon's Budget

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HERE'S A SNAPSHOT of our broke-ass state:

Ailing senior citizens worry they'll be ripped from family and filed into nursing homes. College tuition has surged to keep classrooms open. Teachers fret over pink slips. Health insurance and food stamps for the poor may wind up more expensive or harder to come by.

It's all to save a million bucks here, 10 million more there, as Oregon suffers through an oh-shit financial crisis that seems to be years from ending.

But here's the weirdest image of all: At a time when schools and health programs need every last tax dollar, Oregon is actually poised to hand back revenue. To corporations. Many of which aren't from the state. All because the state economist underestimated their profits.

If trends hold through next summer, the giveback would top $40 million—enough to fund every classroom in the state for two days. The state's primary fiscal crutch, income tax revenue, is more than $1 billion in the hole.

"It's giving a tax cut to the most profitable businesses," said Chuck Sheketoff of the Oregon Center for Public Policy, a longtime critic of the practice. "Why would we subsidize them?"

Turns out, we have to. Blame Oregon's so-called "kicker" law. Basically, lawmakers are compelled to send back cash any time tax revenues exceed projections by more than 2 percent.

Crafted 31 years ago amid a tax rebellion—not unlike today's—the measure is meant to keep lawmakers from seeding permanent programs with one-time windfalls. But it also makes it hard for Oregon to stash money under its mattress.

And now we could really use the money. That's why there's finally been serious talk about making the kicker go away. Or at least making it easier for Oregon to save cash. The subject was broached last week by Governor Ted Kulongoski's Council of Economic Advisors.

"Right now, we have a system of cash prizes for bad guesses," says Joe Cortright, chairman of the council. "If we'd plowed that money into a rainy day fund, we'd be in much better shape."

But kicking the kicker requires chutzpah many politicians lack. Feeling fresh bruises from the fight to hike taxes on the rich, Kulongoski failed to persuade lawmakers to put the question to voters. And polls show only tepid enthusiasm—or hardly any at all.

That's not surprising. Since the kicker's inception, some $2.8 billion in income taxes has been sent back—including a record $1.1 billion in 2007. Voters made it part of the constitution in 2000.

Bill Conerly, another member of the council and chairman of a free-market think tank, was quoted in Salem's Statesman Journal saying, "The thing I like about the kicker is that you cannot add more people and more programs in boom times."

But tweaking the corporate tax kicker could be easier. There's precedent, and there might even be sympathy.

Two years ago, lawmakers mustered a politically difficult two-thirds vote to suspend a giveback worth nearly $350 million. Much of it went to a reserve account the state has steadily drained.

Oregon Department of Revenue figures from 2007 also showed most of the companies in line for rebates were large firms—like banks and chain retailers—very often based out of state.

More outrageous? Corporate tax revenues are exceeding expectations, economists say, only because those businesses are hoarding their profits instead of hiring more or investing in equipment.

"It should be a no-brainer," Sheketoff says of suspending any corporate rebate. "They'll be coming into session in January, facing a $2.5 billon shortfall, and at the same time they'll be giving millions away to corporations."

That said, those opposed to the kicker are free to do their part while waiting and hoping for Salem to act. Paul Warner, director of Oregon's Legislative Revenue Office, said taxpayers may choose to divert parts of their kicker refunds to special funds for schools and other programs.

I asked how much money the state has received back as a result. His reply? "Less than a million."

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