Oregon’s state coffers continue to add personal and corporate income taxes at a record pace, state economists told lawmakers, although there are other signs that pace will slow soon.

Though the state’s two-year budget cycle has almost 18 more months to go, the newest projections put the state on track for a $553 million return of excess personal income taxes in spring 2024 — in the form of credits reducing taxes owed — and a $250 million return of corporate income taxes into the State School Fund.

“That is still up in the air,” Mark McMullen, the state economist, told members of the state House and Senate revenue committees on Wednesday. A determination of whether there are excess taxes will await the September 2023 forecast, the first after the budget cycle closes in June 2023.

Still, he said, the state withheld a record amount of personal income taxes in October — a sign that people are working — and collected a record in corporate income taxes. Those two sources account for more than 90% of the general fund, the most flexible support for state services and aid to public schools. Oregon Lottery sales also have recovered from pandemic lows.

“All of Oregon’s indicators are outstripping expectations. The revenue boom continues unabated,” McMullen said. “Unfortunately, our recent revenue forecasts have called for tax collections to return back to earth. They will continue to grow, but come back to more sustainable levels.”

McMullen said tax collections so far are exceeding the close-of-session forecasts set when lawmakers put together the 2021-23 state budget in June. Under Oregon’s kicker law, amounts that exceed the forecast by 2% or more go back to taxpayers, or in the case of businesses, into the school fund.

Taxpayers will see credits amounting to a record $1.9 billion when they file 2021 tax returns in 2022. The $847 million in excess corporate income taxes was added to the two-year $9.3 billion school fund.

McMullen and senior economist Josh Lehner spoke as the Oregon Employment Department released the state’s October unemployment rate, which dipped to 4.4% from 4.7% in September. Oregon’s economy continued to add jobs, but the agency also reported that growth has slowed since summer.

Oregon is still 70,000 jobs below its pre-pandemic peak — the state’s unemployment rate shot up from a record-low 3.5% in March 2020 to an adjusted 13.2% the following month after businesses closed or curtailed operations — and the Employment Department said 30,000 of those still-unrecovered jobs were in restaurants, bars and hotels, known as the leisure and hospitality sector.

But many workers moved into higher-paying jobs in other sectors, such as transportation and warehousing — and employers are paying higher wages. “As a result, we are seeing income tax collections reflecting it,” McMullen said.

Inflation is eating into some of those gains, though Lehner said workers earning less than $20 per hour are still seeing real growth in wages, but those earning more are feeling the pinch.

“We are in this supply-constrained economy where there are inflationary pressures much higher than we have seen in 30 years,” he said.

While some inflationary pressures are short term, such as the production of goods that has not yet caught up with consumer demand, Lehner said Oregon still faces long-term issues such as the lack of lower-cost housing. Housing sales prices and rents have continued to go up.

McMullen and Lehner did reinforce Employment Department reports that Oregon’s rural counties, not its big cities, have led the recovery from the pandemic. During 2020, median income growth in the 18 counties east of the Cascades was around 15% — double the U.S. median of 7.6% — while it was lowest in Benton County and Washington County, which have the state’s highest per-capita incomes.

Lehner said all Oregonians benefited from federal transfer payments such as stimulus checks, enhanced unemployment benefits and an expanded child tax credit. The first two have ended, and President Joe Biden’s Build Back Better plan proposes to extend the third for another year.

“A lot of these counties started with a low-income base. When you add these transfer payments … it led to large percentage increases,” Lehner said.

“But our traditionally highest-income, lowest-unemployment counties lagged behind the U.S. median because it is a much smaller share in high-income areas.”