As Oklahoma’s tax debate unfolds, it has been encouraging to hear a rising chorus of influential voices insist that any tax plan must be revenue neutral. Given deep cuts that state agencies have absorbed in recent years and the long-term fiscal challenges the state faces in the years ahead, eroding our revenue base with one-sided  tax cuts would be hugely irresponsible and fiscally unsustainable. One promising approach to ensure that we do not bankrupt the state is for Oklahoma to adopt a pay-as-you-go, or PAYGO, requirement.

State Treasurer Ken Miller recently stated:

Budget writers should adopt a “pay-as-we-go” approach to reducing taxes. To responsibly finance tax cuts, policymakers should eliminate one dollar of spending or credits for every dollar cut in taxes.

This can be accomplished with fiscal discipline, better spending prioritization and a refined approach to budgeting.

Miller’s call for a pay-as-you-go approach was quickly endorsed by both the Oklahoman and Tulsa World. Read the rest of this entry »

The push to eliminate Oklahoma’s personal income tax relies heavily for intellectual support on a study done for the Oklahoma Council of Public Affairs by economist Arthur Laffer and his colleagues at Aduin, Laffer & Moore econometrics. Last month we reported on a pair of studies from the Institute on Taxation and Economic Policy, a leading national tax policy think-tank, that revealed fundamental flaws with the Laffer/OCPA report.

Now three leading Oklahoma economists – Dr. Kent Olson, Professor of Economics Emeritus  at Oklahoma State University, Dr. Jonathan Willner, Professor and Chair of the Department of Economics and Finance at Oklahoma City University, and Dr. Cynthia Rogers, Associate Professor of Economics at University of Oklahoma -  have released their own reviews of the Laffer/OCPA report. Each has found serious errors and shortcomings in the OCPA/Laffer analysis and each cautions strongly against using it as the basis for public policy decisions.

Dr. Kent Olson, in a paper titled, “The Voodoo Economics of Phasing out Oklahoma’s Personal Income Tax,” focuses on a regression equation that yields Laffer’s predictions of spectacular economic growth rates from eliminating the income tax. Carefully replicating the data and assumptions built into Laffer’s equation, Olson uncovers multiple errors that lead to mistaken conclusions. Olson writes that the design of Laffer’s key equation and his use of data:

… produces biased and greatly exaggerated estimates of the effects on personal income and non-personal-income tax revenues from phasing out Oklahoma’s personal income tax. In this author’s view, it fails totally to provide adequate justification for such an important change in Oklahoma’s tax structure. Read the rest of this entry »

The share of income Oklahomans pay in state taxes has fallen to its lowest point in decades.  In 2010, Oklahomans paid just 5.5 percent of their total income in state taxes.  This includes sales tax, income tax, motor vehicle tax, excise taxes on oil and gas production, and all other state taxes. This is a major drop from the average of 6.9 percent over the past three decades, and it is well below the previous low of 6.1 percent in 1987 and 2009.

Source: U.S. Census Bureau - Tax Collections; Bureau of Economic Analysis - State Personal Income

As the graph shows, the share of income paid in taxes has been falling since 2006. In 2007 and 2008, collections grew but less rapidly than the state economy as the income tax cuts of the mid-2000s phased in. Once the state was hit by the recession in 2009, collections fell for two straight years, with 2010 collections coming in 15 percent below 2008.. During the same period, state personal income  contracted by 4 percent.

Even before the latest steep drop, Oklahoma was among the lowest tax states in the nation, ranking 40th in total state and local taxes as a share of personal income in 2009.  As we struggle through an incomplete recovery, and with tax cuts back on the front burner of the political agenda, the failure of our tax collections to keep pace with growing costs and growing needs raises critical questions of how we can meet the core responsibilities that Oklahomans expect from state government.

For the past 27 years, a statewide network of Area Health Education Centers (OKAHEC) has worked to increase the supply of primary care providers and improve access to health care in Oklahoma’s rural and underserved communities. Now this program is going away, another victim of the state fiscal crisis and of our failure to provide adequate funding of services that help make us a healthier, better educated, and more prosperous state.

OKAHEC is a community-state-federal partnership that was established in 1984 at the OSU College of Osteopathic Medicine. The program’s central office is part of the OSU Center for Rural Health and its regional centers are located at Cameron University in Lawton, Carl Albert College in Poteau, Tulsa Community College, and Rural Health Projects in Enid.  Nationally there are 56 AHEC programs with more than 235 centers operating in almost every state. Approximately 120 medical schools and 600 nursing and allied health schools work collaboratively with AHECs to improve health for underserved and under-represented populations.

OKAHEC is intended as a comprehensive health workforce development pipeline focused on growing and nurturing the pool of health professionals serving rural and underserved communities. The program has three principal components,  summarized as “get ‘em, train ‘em and keep ‘em”: Read the rest of this entry »

Oklahoma Farm & Ranch Museum, Elk City

Could doing away with Oklahoma’s income tax shift taxes not only onto low and middle-income families but also from urban areas to rural areas? Many programs, services, and incentives important for rural Oklahoma rely on our existing revenue structure and the income tax in particular.  In addition, switching to more reliance on other taxes would especially hurt farmers and ranchers.

States without an income tax have to get resources somewhere to fund their core services.  As the chart below shows, the majority of those states look to the property tax to fill the gap.  Every one of the states without an income tax pay more in property taxes per capita than we do in Oklahoma. The average per capita property tax collections in no-income tax states, $1,507, is more than two-and-a-half times that of Oklahoma, $582. Read the rest of this entry »

A new study of state tax costs on business from the Tax Foundation ranks Oklahoma fifth best in the nation for new firms and 16th best for mature firms. Among states in the region, Oklahoma ranked second lowest in business tax costs for new firms and third for mature firms. While Texas ranked slightly ahead of Oklahoma for mature firms (12th versus 16th), the Lone Star state was determined to be 42nd best for new firms, well behind Oklahoma (5th).

The Tax Foundation report, titled “Location Matters: A Comparative Analysis of State Tax Costs on Business”, claims to be the first study of business taxes that provide comparisons of actual state tax burdens. Unlike other studies, the report is intended to “address the bottom line question asked by many business executives: “How much will our company pay in taxes?””

When looking at taxes paid by specific newly-established and mature industries, Oklahoma ranked among the ten lowest-cost states in six of 14 categories. The state’s ranking ranged from 3rd for new call centers, which are calculated to have a total effective tax rate of 3.9 percent, to 31st for the mature capital intensive manufacturing category, with a total effective tax rate of 13.4 percent.

These findings are particularly notable as proponents of cutting or eliminating Oklahoma’s income tax frequently cite a separate study from the Tax Foundation that ranks Oklahoma 33rd in business tax climate.  Whereas that study measures a state’s tax system in relation to the principles of a ‘model business tax structure’, this new study focuses on how much businesses actually pay in taxes. Read the rest of this entry »

John Thompson is a former Oklahoma historian and inner city teacher who is now an education writer focusing on inner city schools.

When Oklahoma’s No Child Left Behind (NCLB) waiver was granted, local news celebrated a new era of “freedom and autonomy,” apparently believing that standardized testing will become less ubiquitous. But the waiver does not mean that educators who are tired of standardizing testing should be smiling, or that we will begin “a whole new way of educating children”. Neither, however, does it mean that a right-wing conspiracy is poised to take over local schools.

Basically, the Obama Administration’s NCLB waivers were designed to relieve pressure to teach to the test for 90 percent of the nation’s schools, while doubling down on ‘bubble-in accountability’ for the most challenging 10 percent, and imposing new standards for evaluating teachers. It may or may not be possible, however, for a poor state like Oklahoma to successfully comply with the federal mandates. Read the rest of this entry »

The personal income tax is Oklahoma’s largest single revenue source. In 2011, the state collected $2.412 billion from the personal income tax, or slightly less than one in three dollars (31.7 percent) of total state tax collections. With a strong movement developing to substantially cut and ultimately eliminate the personal income tax, it is important to understand the vital role of the income tax in paying for a broad array of public services.

Income tax revenues are allocated in two ways: a set amount is taken off the top for a number of specific programs, and the rest is divided up by a formula. The programs funded off-the-top include:

• The ROADS fund: In 2012, the Department of Transportation received $255.7 million from the individual income tax for maintenance and construction of roads and bridges, along with small amounts for passenger rail services and public transportation. In 2013 and each year thereafter, the ROADS fund will receive an additional $41.7 million until the fund reaches an annual cap of $435 million. Governor Fallin has proposed increasing the ROADS allocation by $56.7 million annually and raising the cap to $550 million in order to repair the state’s bridges;
• Quality Jobs: Companies that qualify for the Quality Jobs program, the state’s marquis economic development program, receive quarterly incentive payments from personal income tax receipts. In 2011, Quality Job payments totaled $61.8 million.
• Oklahoma’s Promise scholarships:  In 2012, $63.2 million in personal income tax revenues was allocated for Oklahoma’s Promise scholarships, which cover higher education expenses for qualified Oklahoma students. Because of carryover in the program’s trust fund, this amount will decrease to $57 million in 2013. Read the rest of this entry »

After three straight years of budget cuts, funding for public education in Oklahoma is in dire straits.  This year’s appropriation to the Department of Education is $254 million, or 10.0 percent, less than it was in 2009.  In the past three years, funding to school districts through the state aid formula, which funds the basic operating costs of schools, has been slashed by $222 million, while public schools enrollment has grown by 22,000 students.  According to the most recent data, the number of teachers was cut by over 1,000 between 2010 and 2011, and this year it is likely there are fewer teachers still. Even though schools have tried to manage cuts while protecting class sizes, simple math dictates that more students and fewer teachers is leading to more kids per class.

Meanwhile, the Legislature has also cut the activities budget for common education, which funds health care costs for teachers and support staff, as well as a portion of retirement costs and programs that aim to improve teacher quality and student performance. This year,  the Department of Education was forced to eliminate or drastically cut a slew of programs, including adult education, alternative education, Great Expectations, A+ Schools, and Literacy First. With its activities budget slashed, the department also opted not to allocate $11.4 million to fund the $5,000 annual bonus promised to some 3,300 National Board Certified teachers and saved $37 million by funding only ten months of teacher and support staff health care benefits for current year contracts. Outrage in the education community over this failure to meet the state’s commitments on health care costs and board certified teachers led some elected officials to promise to make up the funding as mid-year supplementals to this year’s budget. Read the rest of this entry »

The push to eliminate Oklahoma’s personal income tax relies heavily for intellectual support on a study done for the Oklahoma Council of Public Affairs by economist Arthur Laffer and his colleagues. The Laffer report makes two claims: (1) that states without an income tax enjoy stronger economic growth, and (2) that abolishing the income tax would boost Oklahoma’s economy to such a great extent that the state would recapture a major share of lost revenue and not have to slash core services. Last week, we reported on a study from the Institute on Taxation and Economic Policy (ITEP) showing that when more accurate indicators of economic growth are used, states without an income tax are doing no better than other states, including Oklahoma. A follow-up ITEP study now reveals that Laffer’s second claim regarding the economic growth that will result from eliminating the income tax is equally dubious. Together, the debunking of its two main economic arguments leaves the OCPA proposal tottering. Read the rest of this entry »

NOTE: This week, Oklahomans learned the state was on the hook to pay oil and gas producers $294 million over the next three years in deferred tax rebates for horizontal and deep well drilling in 2010 and 2011, an amount almost $150 million more than initially anticipated. The deferred payments came about as a result of legislation, HB 2432, passed in 2010 that provided several concessions to the oil and gas industry in how horizontal and deep well drilling is taxed. Here is the blog post we ran at that time explaining HB 2432 and expressing our concern about the potential costs of tax breaks to the industry. It has been edited to revise one error in the initial post and to link to an updated fact sheet.

In their efforts to find additional revenues for the upcoming budget year, legislative leaders and Governor Henry took some strong and politically risky steps to suspend tax credits for various forms of economic activity. But when it came to tax incentives for the oil and gas industry, expected to amount to some $150 million in FY ’11 and FY ’12, it was the industry that seemed to have the upper hand. HB 2432, which passed in the final days of session, allowed the state temporarily to defer incentive payments to oil and gas producers – but only in return for some permanent and questionable concessions to the industry. Read the rest of this entry »

The 2012 legislative session convened last Monday and will run until the end of May (click here for a complete run-though of how this works in our handy Legislative Overview). With 1,934 new bills  filed, it takes awhile before we know for certain which priorities will dominate the session. But now that our merry gang of bill-trackers have taken a first look, a few themes have emerged.

One is a subject more notable by its absence than its presence: immigration. Last year, some two dozen immigration bills were introduced, most looking to impose tighter law enforcement and verification restrictions on undocumented immigrants. Most of the bills were killed by House and Senate leadership over the course of session. Ultimately a single bill, HB 1446, emerged out of conference committee but was defeated on a bipartisan vote in the House. Read the rest of this entry »