On Wednesday(17 May 2023), state economists stunned lawmakers with income predictions that were significantly higher than what the Legislature had been expecting, giving them $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.
The rising number of high-earning residents in the state of Oregon is a major factor in the increase in tax revenue.
The Oregon Department of Revenue estimates that slightly more than 100,000 residents of the state paid the maximum income tax rate of 9.9% that year. That’s five times as much growth as we saw in all of 2010.
You can learn a lot about tax brackets from the video that follows.
Incomes increased in Oregon and across the country in the first year of the pandemic in 2020, thanks in large part to federal stimulus funds. Tax income in Oregon increased as the wealthy sold stocks and other investments to lock in gains related to the economic expansion.
State analysts had predicted a slowdown in economic activity and tax collections for 2021, but neither of those things transpired.
Wages in Oregon skyrocketed in 2021. While inflation’s record climb ate away at those paychecks, so did the increased tax liability that came with higher salaries.
Thousands of Oregonians found themselves in a higher tax rate as a result of their increased income. Experts in state economics refer to this phenomenon as “bracket creep.”
Four different tax rates exist in the state. The cutoffs for entering the next rate bracket up are adjusted annually for inflation in three of them.
The top tax rate, though, will never change. Earning more than $125,000 per year (or $250,000 for a married couple filing jointly) subjects an Oregon resident to the state’s top tax rate of 9.9%.
Since the threshold of $125,000 remains the same, taxpayers will be subject to the higher tax rate even if their wages have increased simply due to inflation.
In 2021, 5.3% of Oregon filers were hit with the state’s maximum rate on any income they earned.
Although this is still a relatively tiny percentage of Oregon’s workforce, McMullen estimates that these individuals provide more than 40% of the state’s income tax revenue. This is allegedly due to the fact that a disproportionate part of Oregon’s revenue originates from affluent residents, whose earnings are subject to the state’s higher tax rate.
Some of the best blogs about Oregon can be found here.
- Oregon Firefighters Heat Up Early Wildfire Safety Measures.
- Union Identifies Farmworkers as Victims in Deadly Oregon Highway Crash.
State economists admitted on Wednesday that high inflation had been overlooked in their revenue projection models. Their digital models were developed when prices were relatively stable.
Therefore, economists have revised their estimates to account for future inflation and the unchanging character of the highest tax rate. McMullen informed legislators that the updated models had improved the state’s long-term revenue picture, even though the tax data for 2022 has not yet been received (the filing deadline was just a month ago).
“Revenues are up sharply,” McMullen said. “There’s a bit of a ‘new normal.’ Some of this is probably going to persist.”
Make it a habit to check in on our Twitter feed on a daily basis to stay abreast of the most recent happenings in Portland.