Tax return season is starting to heat up, with the filing deadline just about one month away. So far the state has processed and issued nearly 40 percent of expected refunds but received less than 10 percent of final payments — these come just before the deadline. Even so, it can be important to step back and look at expectations for state revenue as we head into peak filing season. As our office writes in our latest forecast publication:
Despite rising stock market and housing prices, the outlook for taxable investment income remains subdued in the near term. Many Oregonians cashed out capital gains in 2012 in anticipation of federal tax rate increases, leaving fewer gains to be realized for tax purposes going forward.
Even as the economic fundamentals improved in 2013 and stock markets boomed, expectations are for modest growth due to the hangover from the Bush tax cuts expiring. Oregon is not alone in this, as evidenced by the latest fiscal survey of states from the National Association of State Budget Officers (NASBO). The timing of the data here is a bit off, but FY12 are actual revenue growth across the 42 states’ worth of data available (43 states levy an income tax in some form but NH data is missing). FY13 data from the report is still an estimate and not finalized, while FY14 is a pure one year ahead forecast. Oregon values are the horizontal red lines.
The general pattern is clear. FY13 saw a bump in growth rates due to the stronger economy but primarily the pull forward of investment income. Based on conversations with colleagues across the country, FY13 likely came in even stronger when all was said and done. Even so, Oregon saw growth accelerate in FY13 but was just below the median state. However the top marginal tax rate for those affected by Measure 66 was also reduced from 11 percent to 9.9 percent in tax year 2012, thus holding down the overall growth rate in collections.
FY14 shows the expected hangover. The median state is forecasting 1 percent with the average actually at -1 percent. In a growing economy, particularly in a place like Oregon where employment growth accelerated as well, and with a booming stock market of nearly 30 percent growth, it is hard to not see 5-7 percent revenue growth — or more. However the taxpayer behavior a year ago is expected to be large enough to hold down growth this year. By late May we should know whether or not these outlooks prove correct.
In terms of the overall forecast for the biennium, also from our forecast publication:
Although the revenue outlook remains on track, the 2013-15 biennium is still young, and therefore significant uncertainty remains. Two income tax filing seasons remain between now and the end of the biennium. As such, many risks to the outlook remain. On the upside, if asset markets continue to boom or if Oregon’s traditionally strong migration trends and labor force growth reappear, a short-term spike in revenues remains possible during the 2013-15 budget period. At this point, it would take only about $100 million in unanticipated revenue to trigger the kicker law.
Our office’s next forecast is scheduled to be released May 28th, 2014 when we should have a good idea of how the tax season turned out.