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Capital Chatter: State officials using 'R' word

Two-thirds of economists surveyed by the Wall Street Journal said a recession was not likely during the next year.

Smokey Bear tells us, "Only YOU can prevent wildfires."

Now it seems, "Only YOU can prevent recessions." Consumer spending — you, me and 329.5 million of our friends and neighbors across America — accounts for two-thirds of our national economy. If consumers get skittish on their spending, and if firms pull back on their spending, then we could have a recession.

It could be a recession focused on one sector of the economy. Or it could be an overall recession.

"Recessions are very much psychological phenomena … coordinated pessimism where everyone pulls back at once," State Economist Mark McMullen told the Oregon Legislature's interim committees on revenue this week.

"Where we are today with every major newspaper on the front page talking about recession risk, recession risk, recession risk over the next year, it wouldn't take much of a shock or a coordinating event to really cause all this pessimism to create this self-fulfilling prophecy."

Two-thirds of economists surveyed by the Wall Street Journal said a recession was not likely during the next year. "Which would be more comforting to us if we weren't so crappy at predicting recessions, which we have a very poor track record of doing," McMullen said.

The good news is that Oregon is better-prepared than in the past, having built up its rainy day funds — although not enough to carry the state government through a severe recession.

In a statement this week, House Majority Leader Barbara Smith Warner, D-Portland, noted the national signs of an economic slowdown on the horizon. Thanks to prudent decisions by the 2019 Legislature, she said, state government are well-positioned to weather any impending economic storm.

For everyday Oregonians, the big headline out of this week's quarterly economic and revenue forecasts was another miss by the state economists.

The state collected $1.57 billion more in personal income taxes and related revenue than had been predicted when the 2017-19 budget period began. Because of Oregon's unique "kicker" law, that money will be returned to taxpayers next year.

State Sen. Tim Knopp, R-Bend, a member of the Senate interim revenue committee, told me that he expects Oregonians will actually get their kicker refunds instead of having the Legislature take the money for other uses.

The kicker law is designed to rein in state spending by preventing any temptation by economists and budget writers to underestimate revenue.

"While taxpayers will get a kicker of over $1.5 billion of their own money that they rightfully deserve, they should have gotten more," Oregon Senate Minority Leader Herman Baertschiger Jr., R-Grants Pass, said in a statement after the kicker amount was announced.

"Despite the strong economy, the majority party passed billions of dollars in taxes that will hurt Oregonians on fixed incomes. The kicker will go in Oregonians' pockets and come right back out to fund big government."

The way the kicker works is that if actual state revenues over the two-year budget cycle exceed the initial projection by at least 2 percent, all of the excess is returned to taxpayers. Meanwhile, the corporate tax kicker goes into one of those rainy day funds.

The personal kicker includes insurance, inheritance and tobacco taxes, but personal income taxes are by far the largest portion. When individuals and couples file their 2019 personal income tax returns next year, they will get a credit amounting to about 15 percent of what they owe. In contrast, the 2017 kicker rate was 5.6 percent.

The astounding size of the current kicker brought renewed but unsuccessful calls from Democrats to spend some of it on state services. Gov. Kate Brown proposed taking some to stabilize PERS and to create rural housing, but Republicans would not go along.

Progressive organizations contend the kicker unfairly benefits the rich. The top 1 percent of Oregon personal income taxpayers – those with adjusted gross incomes above $418,500 – will get an average kicker of $15,214. The bottom 20 percent of taxpayers – those with incomes below $11,700 – will get $28.

The median kicker for all Oregonians will be $346.

"The kicker is premised on the false assumption that state economists can foresee the future with extreme accuracy," Daniel Hauser and Juan Carlos OrdÓñez of the progressive Oregon Center for Public Policy wrote in a blog post this spring.

"The kicker has kicked Oregon at the worst possible of economic times — in each of the last four recessions. It struck during the deep recessions of the early 1980s. It hit again in 1991 amidst a recession; however, lawmakers rightly suspended it to address a budget shortfall. It kicked during the recession of the early 2000s following the bursting of the Internet bubble. And it struck on the eve of the Great Recession in the late 2000s."

Which brings us back to the possibility of a recession.

McMullen and Senior Economist Josh Lehner said the state's economy is stable for now, but concerns exist. The growth in Oregon manufacturing is slowing, with employees putting in 1.5 fewer work hours each week.

The international trade disputes are a huge worry, escalating in recent weeks — too soon to show up in the economic data. However, Oregon exports of agriculture, timber and machinery products already are down substantially over the last couple of years.

The statistics for overall Oregon exports look good because of our high-tech and chemical exports to China. However, the chemical exports primarily are potash brought down to Canada for shipping through the Port of Portland and are not an Oregon program.

"Frankly, the international economic situation is quite unstable," Gov. Brown told journalists during her media availability by telephone on Wednesday.

So is at recession at our door? Perhaps it comes down to this: As long as Oregonians and our fellow Americans feel good about the economy, the economy will be good.

Speaking of wildfires: Brown asked journalists to remind Oregonians to be extra vigilant about wildfire prevention heading into the Labor Day weekend. Humans cause the majority of wildfires in Oregon, and this weekend typically is a time when more such fires occur.

"These are really difficult fire conditions over the next couple of days," Brown said. "Be safe, don't start fires and don't do anything stupid."

Dick Hughes, who writes the weekly Capital Chatter column, has been covering the Oregon political scene since 1976. Contact him at TheHughesisms@Gmail.com, Facebook.com/Hughesisms, YouTube.com/DickHughes or Twitter.com/DickHughes.