This post was written by Nick Johnson, Vice President for State Fiscal Policy with the Center on Budget and Policy Priorities. This originally appeared on the Center’s Off the Charts blog and is reposted with permission.

Yesterday’s Wall Street Journal editorial supporting a proposal by Oklahoma governor Mary Fallin to phase out the state’s income tax contains a slew of incorrect or misleading statements.  For instance:

• The editorial wrongly asserts that states without income taxes have had stronger economic growth than other states, echoing a claim from a recent report from economist Arthur Laffer and the American Legislative Exchange Council.  As we have explained:

A key flaw in the Laffer analysis is that all of its measures of “economic growth” are really just measures of population growth.  As a state’s population grows, you would expect its total number of jobs and its total economic output to grow with it.  But, that’s not the same thing as a state’s per-capita performance.

A study from the Institute on Taxation and Economic Policy shows that residents of states with relatively high income tax rates are doing as well, if not better, than residents of states lacking a personal income tax in terms of per-capita economic output and household income.

• The editorial claims that states with relatively high income tax rates have faced the biggest budget shortfalls.  That’s simply not true.  Four of the nine states without an income tax — Nevada, New Hampshire, Texas, and Washington — have closed (or are closing) above-average shortfalls for the upcoming fiscal year, while some of the high-income-tax states that the editorial mentions, like Illinois and Maryland, had below-average shortfalls.Also, the editorial’s boast that no-income-tax states “manage to balance their budget nearly every year” makes little sense, since all states except Vermont are required to balance their budgets.
• The editorial cites Governor Fallin’s warning that Oklahoma is about to become an “income tax sandwich” as neighboring states consider eliminating their income taxes.  It’s true that anti-tax activists have been promoting income tax repeal in Kansas and Missouri for years.  But they haven’t succeeded.   In fact, Governor Fallin’s proposal would make Oklahoma the only state ever besides oil-rich Alaska to repeal its income tax.

The editorial correctly notes that many of Oklahoma’s leading economists have challenged claims that eliminating the income tax would help the economy.  But it wrongly suggests that non-economists feel differently.  A recent survey found that Oklahomans oppose the tax cut by a 42-35 percent margin, partly because they overwhelmingly view an educated, well-trained workforce as more important than low taxes — and a state that lacks income tax revenue will find it harder to find the resources to educate its own people.

Elizabeth McNichol is a Senior Fellow at the Center on Budget and Policy Priorities specializing in state fiscal issues including methods of examining state budget processes and long-term structural reform of state budget and tax systems. This post originally appeared on the CBPP’s blog. See OK Policy’s animated video comparing the Oklahoma and Texas economies here.

The Governor of Oklahoma and policymakers in Kansas, Missouri, and other states have proposed income tax cuts that they say will boost economic growth. To make their case, they have cited the example of Texas, which has no income tax and where growth has been strong.

But in reality, Texas is not a helpful model for economic growth for the rest of the country. True, the number of people and jobs in Texas has been expanding. But, as we discuss in our recent paper, much of Texas’ growth results not from its policies but rather from factors that state officials cannot control and that other states cannot emulate.

• Texas has unique geographic and demographic characteristics that have helped lift its economy in recent years. Its border location brings trade opportunities and encourages immigration that, together, help fuel population and job growth.
• A combination of available land and lending regulations have kept housing prices comparatively low and helped Texas avoid the real estate depression that dragged down many other state economies.
• Though Texas’ economy has diversified in recent decades, the state’s abundant oil and gas resources remain a valuable asset — especially when prices for those commodities are high — that most other states lack. Read the rest of this entry »

Photo by Martha Soukup used under a Creative Commons license.

States without an income tax rely on other taxes to fund government. Far from discovering magical, revenue boosting powers by not having an income tax, these states simply charge higher sales and property taxes.

A new report from the Center on Budget and Policy Priorities shows how much higher:

• In fiscal year 2009, the nine states without an income tax had property taxes that were, on average, 12 percent higher per capita and 8 percent higher as a share of personal income than the national average.
• Sales taxes in those nine states were 21 percent higher per capita and 18 percent higher as a share of personal income than the national average.

The property tax comparison is especially relevant for Oklahoma, since our income tax helps us to keep property taxes very low. In every state without an income tax, people pay much higher property taxes compared to Oklahoma. The average per capita property tax in no-income tax states is more than two-and-a-half times what we pay here. Read the rest of this entry »

Source: The Working Poor Families Project

Earlier this fall, the Census Bureau released its annual report on poverty in the United States. In 2010, 15.1 percent of Americans, or 46.2 million persons, lived below the poverty level, which was $22,050 for a family of four. Among children the poverty rate was 22.0 percent, while for seniors, it was 9.0 percent. In Oklahoma, the poverty rate overall was 16.9 percent, with just under one in four children living in poverty (see our Oklahoma Poverty Profile fact sheet and this blog post).

As a measure of a household’s financial situation, the official poverty measure is deeply flawed. As we noted a year ago:

 Census Bureau numbers [are]  based on a measure that looks strictly at a household’s cash income and that is pegged to the cost of a 1950′s basic food diet, adjusted for inflation.  The measure has long been criticized as inadequate: among other limitations, it fails to reflect the real costs families face in meeting basic needs; it fails to adjust for regional differences in the cost of living; and it excludes non-cash income and benefits received by low-income families.

This year, the Census Bureau took a major step toward addressing some of the flaws with the official poverty measure by releasing the Supplemental Poverty Measure (SPM). Unlike the traditional poverty measure, the SPM determines poverty status by comparing a more expansive definition of family’s income with a more meaningful threshold designed to reflect the cost of meeting basic needs, like food, clothing, and shelter. The SPM counts tax credits, such as the Earned Income Tax Credit and Making Work Pay credit, and non-cash benefits, such as food assistance and housing vouchers, as income that help families afford basic needs. It also acknowledges the burden of work expenses, like child care, and out-of-pocket health expenses for many Americans. The Poverty and Policy blog provides a clear summary of the new measure’s assumptions and methodology. Read the rest of this entry »

Oklahoma is facing serious challenges when it comes to having the resources to provide the sorts of public services that help create jobs and build a strong economy.

Yet while the need to chart a sound, sustainable fiscal course is urgent, our policymakers too often are flying blind. Legislators routinely make spending and revenue decisions that will have long-term consequences without access to key information about the cost of funding existing obligations in the coming years.

Two recent reports from the Center on Budget and Policy Priorities (CBPP) suggest a pair of sensible budget management tools that Oklahoma should adopt .

• Current services budget: This tool would provide lawmakers and the public with the cost of maintaining today’s level of programs and benefits.
• State PAYGO requirement: It would require all new spending and tax cuts be fully paid for. Read the rest of this entry »

Michael Mazerov is a Senior Fellow with the Center on Budget and Policy Priorities, where he specializes in state and local taxation of businesses. This interview was conducted by e-mail on October 25, 2011. For additional information on combined reporting, see Michael’s issue brief.

David Blatt: What problem is combined reporting trying to address?

Michael Mazerov: Most large multistate corporations are actually corporate groups, with a parent corporation that owns numerous subsidiary corporations.  That structure allows members of the corporate group that are subject to Oklahoma’s corporate income tax to engage in artificial transactions at artificial prices with members of the group that aren’t in Oklahoma, in order to shift profits that are earned in Oklahoma beyond the taxing power of the state.  The profits get shifted on paper onto the books of the out-of-state parent or subsidiaries that Oklahoma doesn’t have the legal authority to tax. Read the rest of this entry »

Though revenue collections continue to show steady growth, state budgets remain under great stress. After three successive years of funding cuts, most state agencies are operating this year with appropriations that are at least 10 percent less than prior to the economic downturn. Even if the economy does not slip back into recession, the prospects are dim that revenues will grow sufficiently to restore funding to pre-downturn levels and begin to tackle our long-term obligations.

Budget-cutting efforts in Washington are adding to the perils confronting the state budget. Federal spending has a major impact on both the state economy and the state budget. The federal government spent $38.5 billion in Oklahoma last year, which works out to $10,256 for each resident.  The largest component of federal spending is for direct payments to individuals for Social Security and Medicare, along with salaries and wages to military personnel and other federal employees based in Oklahoma. Read the rest of this entry »

Now that default has been averted and the agreement to raise the federal debt limit has been signed into law, attention here in Oklahoma has shifted, at least temporarily, from politics back to the weather (or, from the debt ceiling to the sweat ceiling). Although the full implications of the agreement will not be understood for months, or years, it is clear that the deal to lower the deficit will have far-reaching consequences for federal and state budgets and the economy. For those looking for concise analysis of  the agreement’s  fiscal and economic implications, here are a few pieces worth reading:

• Good short summaries of the basic mechanics of the deal are provided by this White House fact sheet and by the Center for American Progress; the full bill and accompanying materials can be found here.
• In a statement by Robert Greenstein, the Center on Budget and Policy Priorities argues that “the deal places the nation on a disturbing policy course and sets what may become important precedents that are cause for serious concern.” The Center is especially worried that the deficit reduction framework set up by the agreement paves the way for cuts of “an unprecedented depth” to discretionary spending programs and makes a balanced approach that includes additional revenues an unlikely outcome. Read the rest of this entry »

Gov. Fallin and other state leaders have set a long-term goal to eliminate Oklahoma’s income tax. One reason frequently offered by opponents of the income tax is that it will encourage people and businesses to move to Oklahoma from other states.

A report released today by the Center on Budget and Policy Priorities shows that this argument is wrong. Major findings of the report include: Read the rest of this entry »

This post by Dave Chandra originally appeared here on the Center for Budget and Policy Priorities (CBPP) Off the Charts Blog.  OK Policy recently blogged about two unsuccessful bills this session to establish Oklahoma’s Health Insurance Exchange.  To learn more about exchanges and their requirements under the new federal health reform law, click here.

The continuing rhetorical battle over health reform shouldn’t obscure the fact that states are taking important steps to implement last year’s historic legislation.  For example, virtually every state has made at least some progress toward setting up health insurance marketplaces or “exchanges,” which will give individuals and small businesses affordable, comprehensive coverage options.  The Affordable Care Act calls for states to have exchanges up and running in January 2014.

California and Maryland have been out front:  both states have enacted laws setting up their exchanges and appointed the boards that will run them.  Now they’re beginning to tackle the key issues that must be resolved for the exchanges to succeed. Read the rest of this entry »

David Stockmann was director of the Office of Management and Budget under President Reagan and once a leading advocate of supply-side economics. Yet In a recent New York Times op-ed, he makes a point most frequently heard from liberals and progressives: America is in a period of rapidly and steeply rising inequality. Stockmann contends that both federal budget proposals, one by President Obama and the other by Republican Congessman Paul Ryan, would bring the nation “dangerously close to class war.” He writes:

This lamentable prospect is deeply grounded in the policy-driven transformation of the economy during recent decades that has shifted income and wealth to the top of the economic ladder. While not the stated objective of policy, this reverse Robin Hood outcome cannot be gainsaid: the share of wealth held by the top 1 percent of households has risen to 35 percent from 21 percent since 1979, while their share of income has more than doubled to around 20 percent. Read the rest of this entry »

The U.S. House or Representatives is expected to vote tomorrow on a federal budget proposal for the coming year that would —  among other things —  force drastic cuts to Medicaid that would harm Oklahoma seniors, people with disabilities, and children.  The budget plan, introduced by Republican Congressman Paul Ryan of Wisconsin, would also shift costs and risks onto our state and likely would force the state to cut payments to hospitals, nursing homes, physicians, and pharmacies.

Medicaid  is a primary source of health insurance for seniors, persons with disabilities, and children. Medicaid is especially important for Oklahomans receiving long-term care  in their homes or in nursing home facilities. It is also a cornerstone of the health care system for hospitals, physicians, pharmacies, nursing care facilities, home health care providers, and other professionals and businesses across the state. About one out of every five Oklahomans – close to 700,000 people -  receive health insurance coverage through Medicaid.

The Ryan proposal would turn Medicaid into a block grant.  Instead of covering a fixed share of a state’s Medicaid costs, the federal government would write a check each year. It would dramatically cut the amount of money it gives to a state, and that cut will grow bigger and bigger every year.  In total, states would receive $771 billion less over the next ten years under the Ryan plan; Oklahoma would lose some $8.2 billion, according to projections from Families USA. Read the rest of this entry »