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larger industry bailouts for major corporations, have led to a surge in business tax liability. Ignoring the business income that flows through Personal Income Tax returns, federal business aid has increased traditional Corporate Tax collections by $200-$300 million. Another factor supporting strong tax
Despite the sharp reduction in economic activity, Oregon’s primary revenue instruments have continued to grow. Collections of Personal Income Taxes and Corporate
Taxes both set record highs over the post- shutdown (March-to-September) period
collections is the fact that high- income households have been
this year. Could it be the recession might not have a significant impact on state tax revenues? Of course not. However, the fact of the matter is that the economic pain has yet to be fully reflected in Oregon’s revenue data.
Could it be the recession might not have a significant impact on state tax revenues? Of course not.
relatively spared from economic losses to date. Given widening economic inequality, high- income households have an increasingly disproportionate impact on aggregate economic indicators like spending and income. This dynamic is even more pronounced for Oregon’s Personal Income Tax revenues
Timing is part of the reason. As is the unprecedented amount of federal aid. Although the recovery rebates are not taxable in Oregon, enhanced unemployment insurance benefits are. Around $170 million in personal income tax collections have already
given our relatively progressive rate structure. However, even though high- income households have fared relatively well
been withheld from unemployment insurance checks. However, to date, this is not far off of what was assumed in the June forecast. What was missing from the June forecast was the positive impact on tax collections associated with federal aid for businesses. Forgivable loans associated with the Payroll Protection Program, together with even
to date, the 5% net job losses we have already seen among high-wage industries are more than large enough to strain tax collections. Finally, unexpected spillovers from the 2019 tax season have also boosted revenues in the current biennium. As year-end tax payments came in, both Personal and Corporate tax collections surprised on the upside. Unlike the traditional April surprise, however, this surprise did not come until July due to the extended tax filing deadline. Tax returns processed so far do not reflect such strong liability growth in 2019. This suggests that the highest income filers, who often file extended returns in the fall, earned more than other filers last year. Due to the unexpectedly large flow of collections seen over the past year, the General Fund revenue outlook for the 2019-21 biennium is now no different than it was before the recession hit. Although the reduction in state revenues has been delayed, the pain will eventually be felt given the magnitude of the damage to Oregon’s labor market. With little change to the economic outlook, the September 2020 revenue forecast converges back close to the June 2020 forecast over time. If the September 2020 forecast proves accurate, not only is the General Fund is in very good shape for the current biennium, but there will be additional revenues available to apply to 2021-23. Following the June 2020 revenue forecast, the Oregon Legislature met in a special session and enacted measures that filled the expected budget hole for 2019-21. As a result, the additional revenues in the September 2020 forecast are not needed immediately. Instead, an expected General Fund ending balance of $1.7 billion will be available to apply to the 2021-23 budget period. n
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The Business Review | October 2020
October 2020 | The Business Review
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