Last week, the Oklahoman published a “Tax Day” editorial addressing OK Policy’s recent contributions to the debate on the state budget crisis. They began by emphasizing our common ground:

Along with the Oklahoma Policy Institute’s David Blatt, we’ve been urging lawmakers to use the downturn to find sensible new sources of revenue (such as ending or capping ineffective tax credits) and to better prepare for the next downturn.

This is a meaningful and much-appreciated acknowledgment, as the need for new sources of revenue is a contentious principle  at the Legislature and around the state these days (See this insightful article by Patrick McGuigan on how this issue divides the state’s two policy think-tanks, us and the Oklahoma Council of Public Affairs). But the Oklahoman proceeds to reject one of our main proposals for bridging the budget gap, doing away with the exemption that allows taxpayers who itemize their returns to also claim the deduction for state income taxes from their state taxes. The exemption costs the state an estimated $118 million on income tax revenue annually, which at a time of drastic budget scenarios, could make a major difference in preserving critical public services.

We have noted that the exemption for state income tax benefits only the minority of taxpayers, about one in four, who claim itemized deductions. Their editorial states:

That alone is reason to urge caution — especially considering that some states (most notably Texas) have no income tax and Oklahoma’s maximum personal income tax rate is uncomfortably high at 5.5 percent. Read the rest of this entry »

As Oklahoma faces record budget shortfalls, the threat of massive cuts that would slow the state’s economic recovery and have potentially devastating effects on schools, social services, and public safety loom large. In this context, there is an urgent need for a balanced approach to bridging the state’s budget gap that includes identifying possible sources of additional one-time or ongoing revenue. This post is the second in a series that discusses some of the most promising policy ideas for generating additional revenue that would go at least part of the way to closing the budget deficit; the first looked at the sales tax discount paid to vendors.

Were you aware that Oklahoma allows a state income tax deduction for state income taxes? The idea doesn’t sound plausible, but it’s true.  Among the allowable deductions for those who claim itemized deductions on their federal taxes is one for state income tax. In 2007, according to IRS statistics (Excel file),  about 400,000 Oklahomans claimed this deduction to the tune of $2.2 billion. Due to a quirk of Oklahoma tax laws, those deducting state income taxes from their federal taxes are also allowed to claim this deduction against their state income tax. Read the rest of this entry »

An interesting new report from our friends at the Center on Budget and Policy Priorities looks at whether families with income below the federal poverty level (FPL) in each state are subject to state income taxes. It finds that for Oklahoma, the threshold at which a two-parent family with two children owes state income tax made it above the federal poverty line for the first time in 2008. The income tax threshold for a two-parent family of four was $23,500 in 2008, which is 107 percent of the FPL of $22,017. The report shows that back in 2000, the state’s income tax threshold for a family of four was several thousand dollars below the poverty line. Read the rest of this entry »

Mickey’s Musings, the policy blog of UCO Economics Professor Mickey Hepner, is consistently one of the best local sources for credible information and thoughtful opinion on economic and fiscal issues facing Oklahoma and the nation. One of Mickey’s favorite themes, which he revisits in this recent post, is that because of the interaction between federal and state tax laws, cutting  the state income tax is of limited economic benefit to Oklahoma.  Read the rest of this entry »