State economists surprised lawmakers Wednesday with revenue forecasts far above what the Legislature had been expecting, providing lawmakers with $1.9 billion more to spend than they had anticipated just a few months ago.
“Available resources are up sharply, not just today but in the foreseeable future,” state economist Mark McMullen told a House committee meeting Wednesday. Under the state’s unique kicker law, unexpectedly high tax receipts also create a bigger tax rebate for Oregonians. It now figures to be $5.5 billion.
One major reason for the revenue boost is a jump in personal income tax collections, and the rapidly growing number of Oregonians in the state’s top tax bracket.
A little more than 100,000 Oregonians were subject to the state’s top income tax rate of 9.9% in 2021, according to the Department of Revenue. That’s up by a third from the prior year, and up fivefold since 2010.
Oregonians, and people across the country, enjoyed higher incomes during the pandemic’s first year in 2020, thanks largely to federal stimulus payments. Wealthy people sold stock and other investments to lock in gains associated with the economic boost, further lifting Oregon tax revenue.
State economists anticipated income and tax receipts would moderate in 2021, but that’s not what happened.
Oregon wages soared in 2021. And while higher prices from a historic rise in inflation took a bite out of those paychecks, the higher wages also meant bigger tax bills.
For thousands of Oregonians, rising income also pushed them into a higher tax bracket. It’s what state economists call “bracket creep.”
The state has four tax brackets. Three of the brackets are indexed to inflation, meaning the threshold to pay a higher rate rises each year.
But the top tax bracket is fixed. Oregonians pay the state’s top tax rate, 9.9%, on income they earn above $125,000 annually, or above $250,000 for married couples filing jointly.
Since that $125,000 threshold doesn’t change, people become subject to the higher tax rate even if their wages only rose because of inflation.
| Taxable income | Tax before credits |
|---|---|
| Less than $3,750 | 4.75% of taxable income |
| $3,750 to $9,450 | $178 plus 6.75% of income over $3,750 |
| $9,450 to $125,000 | $563 plus 8.75% of income over $9,450 |
| Over $125,000 | $10,674 plus 9.9% of income over $125,000 |
| Taxable income | Tax before credits |
|---|---|
| Less than $7,500 | 4.75% of taxable income |
| $7,500 to $18,900 | $356 plus 6.75% of income over $7,500 |
| $18,900 to $250,000 | $1,126 plus 8.75% of income over $18,900 |
| Over $250,000 | $21,347 plus 9.9% of income over $250,000 |
In 2021, 5.3% of Oregon taxpayers were subject to that top tax rate for at least a portion of their income.
That’s still a small share of Oregon workers but those taxpayers account for an outsized share of state income tax revenue – upwards of 40%, according to McMullen. That’s partly because wealthy Oregonians earn an outsized share of the income in the state, and partly because those higher incomes are also subject to the higher tax rate.
On Wednesday, state economists said their models for forecasting state revenue hadn’t properly accounted for the effects of elevated inflation. That’s because the computerized models were invented during a period of low to moderate inflation.
So the economists have adjusted their calculations, incorporating inflation forecasts and the fixed nature of the top tax bracket. While 2022 tax data hasn’t arrived yet – the filing deadline was just a month ago – McMullen told lawmakers that the new models have adjusted the state’s long-term revenue outlook upward.
“Revenues are up sharply,” McMullen said. “There’s a bit of a ‘new normal.’ Some of this is probably going to persist.”
— Mike Rogoway | mrogoway@oregonian.com |
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This is Oregon Insight, The Oregonian’s weekly look at the numbers behind the state’s economy. View past installments here.
