Oregon economic forecast: higher wages boost state revenues, workers feel inflation

Portland lags the rest of the state in economic recovery as the effects of the Covid pandemic persist.

SALEM – Higher wages increase Oregon’s expected tax revenue, but most working middle class will not feel the benefits of higher wages in the next year due to inflation, state economists said Wednesday.

A quarterly economic forecasts of the State Administrative Services Department predicted that Oregon will recover from a pandemic-induced recession much faster than it did from the Great Recession. Higher wages, especially for low-income workers, make up for the expiration of federal aid, according to forecasts.

But labor shortages and supply chain disruptions are driving up prices and eating into family budgets. And the Portland area, which contains about half the state’s population and jobs, is lagging behind the rest of Oregon in recovering from the pandemic.

With Oregonians earning more money, the state is collecting more tax revenue than expected when the current budget cycle began in July. Oregonians who filed taxes in 2020 and 2021 are already expected to receive $ 1.9 billion next year in “bigger” tax credits triggered when the state collects more taxes than expected, with a credit of $ 420 for the median taxpayer. Forecasters now predict that the state will also reimburse $ 558 million in 2024.

A pink forecast for state government revenues presented to the Oregon House and Senate finance committees came as other legislative committees heard serious warnings of a wave of evictions to come so that tenants have difficulty paying rent.

“It’s still really something to understand that we are in a situation with a revenue forecast where we see additional revenue compared to what had been forecast; things look really rosy that way, ”said Rep. Nancy Nathanson, an Eugene Democrat who chairs the House committee. “There are other legislative committees that are hearing very troubled information about people at risk of losing their homes and other types of challenges for some businesses and individuals in Oregon. How can this be true at the same time?

The pay gap narrows, inflation hits

Overall, inflation-adjusted wages have risen about 8% since the start of the pandemic in Oregon in March 2020. Workers earning less than $ 20 an hour have seen the largest increases. large, while those who earn more have seen increases again, but they haven’t. keep pace with inflation.

Normally, inflation would hit low-income workers the hardest, state economist Josh Lehner said. If you live paycheck to paycheck, higher prices mean those paychecks don’t go that far. Workers who earn more and don’t consistently spend everything they earn might need to reduce the amount they save, but they might also benefit from a growing return on their investment.

On average, Oregon’s low-income workers are raising their standard of living, while middle-income workers are beginning to fight the erosive effects of inflation.

“Basically, if you make more than $ 20 an hour, you see wage gains, but not as fast as inflation, so you see real wage declines,” Lehner said. “From a broader societal economic perspective, perhaps some reduction in wage inequality would have wider benefits, even in an environment of high inflation, but of course when the typical worker sees his real wages. go down and you pay more at the pump, more at the store, it’s really starting to hit your budget.

For the most part, economists expect higher prices to start falling as supply catches up with demand for products that were produced at much slower than normal rates during the pandemic. For example, used car prices have increased by about 40% since the start of the pandemic due to a shortage of semiconductor chips needed for new cars, but these prices are expected to decline as manufacturing continues. intensifies.

Other areas, including the rising costs of buying or renting homes, are of more concern, state economist Mark McMullen said.

“We are seeing huge inflation out there, but unlike what we are seeing in terms of a lot of other durable goods, we cannot expect a huge supply response that is going to come and save the day and make lower house prices and lower rents in the future, “he said.” So this is something where policymakers can have a role to play. “

If inflation doesn’t cool down, Oregon could be in recession again by 2023, according to another forecast. This scenario predicts that more than 130,000 people would lose their jobs and that the state would not fully recover until 2028.

Rural recovery overtakes Portland

Counties in eastern Oregon have far outpaced the rest of the state and most of the country in terms of income growth over the past year, mainly because many families had low incomes there. , McMullen said. Stimulus checks, changes to child tax credits that allowed guardians to receive monthly payments, and increased federal unemployment benefits were more significant in lower middle-income counties.

Portland, meanwhile, lags behind the rest of the state in recovery. Other major metropolises in the country are also recovering more slowly from the pandemic than rural and suburban areas, which economists say demonstrates a difference between the pandemic-induced slowdown and the Great Recession.

After this recession, metropolitan areas dominated the rest of the country. But cities thrive on crowds and in-person activities, and people are not yet flocking to cities for shopping and events.

“What affects all major urban areas is the lack of in-person activity,” Lehner said. “People don’t go out to see performances, don’t go out to eat as much in urban centers as they are in the suburbs and in our rural communities.

Lehner and McMullen wrote in their report that they expect Portland to remain an attractive place to live and to make a full recovery, but it is not clear whether the city will regain its place among the most attractive destinations for people. workers.

What to do with more money

Legislative leaders and Governor Kate Brown have responded to the forecast with various suggestions on how to use the roughly $ 700 million in additional revenue forecast for the state’s current two-year budget cycle.

In a statement, Brown said the state should use its manna to help people of color, who she says have been disproportionately affected by the pandemic. She asked a subgroup of the state’s racial justice council to develop budget proposals to get people back to work and improve career opportunities, she said.

“We must continue to focus equity in our recovery efforts to ensure that communities disproportionately affected by the pandemic due to historical disparities – Blacks, Indigenous people, Latinos, Latinos, Latinos, Asians, Pacific Islanders, Tribals and people of color in Oregon – benefit equally. of Oregon’s strong economic recovery, ”Brown said.

House Speaker Tina Kotek, D-Portland, said in her own statement that the state must invest new revenue in communities that have suffered the brunt of the economic downturn. She cited rent assistance as one of the uses of public funds.

“The revenue growth in today’s forecast doesn’t change the fact that too many Oregonians are still facing a difficult recovery from the pandemic recession,” Kotek said.

Meanwhile, parliamentary minority leader Christine Drazan, R-Canby, and Senate Speaker Peter Courtney, D-Salem, have urged spending caution.

“Oregon continues to experience robust growth,” Courtney said. “We didn’t expect that. Apparently, we recovered quickly from the economic downturn. Economists don’t seem to know why. I think we have to continue to be vigilant and frugal with the money we have. “

And Senate Republicans took advantage of the windfall to demand tax breaks. Senator Lynn Findley, R-Vale, said he would reintroduce legislation to reduce income taxes, including exempting prescription drugs, diapers and feminine hygiene products from the tax on the activities of women. state corporations.

Oregon does not have a state sales tax, but the Corporate Activity Tax does impose a tax on businesses on their gross receipts. Because businesses can pass these costs on to consumers, critics of the tax call it a hidden sales tax.

“The state continues to get bigger budgets, but working families are struggling to make ends meet because of inflation,” Findley said. “Oregon Democrats have denied any opportunity to give working families a break.”

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