Arthur Laffer

Earlier this month, rival events on the income tax debate presented an illuminating contrast. OK Policy’s forum featured economists from Oklahoma public and private universities, as well as economic development experts from the state Department of Commerce and the OKC, Tulsa, and State Chambers of Commerce. These experts from across Oklahoma’s academic and business community shared the message that eliminating the income tax would not live up to the promises of tax cut boosters and could be a disaster for the state.

At the same time, the Oklahoma Council of Public Affairs (OCPA) brought speakers from outside of Oklahoma to push for tax cuts. OCPA’s event featured an anti-tax activist from Missouri, the Kansas budget director (who is a former OCPA fellow), and a representative from a Washington D.C. think tank. Their blog response to the Oklahoma economists’ critique was done by an economist from the Show-Me Institute, Missouri’s version of OCPA.

The contrast raises an important question: who is behind the push to eliminate the income tax? It’s not coming from Oklahoma economists or the state’s business community. The state and major metro chambers’ reactions have ranged from ambivalence to outright opposition. It’s not coming from the grassroots. Multiple lawmakers, Republicans and Democrats alike, have said they are not hearing from constituents that we should do away with the income tax. Read the rest of this entry »

Stephen Ellis, Ph.D., is Associate Professor in the Department of Philosophy at the University of Oklahoma. His research areas include philosophy of economics, decision theory, philosophy of mind and ethics.

The debate about the degree to which economics supports drastic reductions in income tax rates in Oklahoma has gone through three stages.

1. A study by the Oklahoma Council of Public Affairs (OCPA) and Arduin, Laffer, and Moore Econometrics (ALME) supplies the main intellectual prop for the income tax cut proposals.  It claims that “both the statistical and anecdotal evidence” establish “clear[ly] that Oklahoma’s economy would soar if the proposed economic plan [‘a complete phaseout of the state’s personal income tax’] were implemented.”
2. A group of Oklahoma economists has sought to debunk the OCPA/ALME report, arguing that the evidence it provides doesn’t actually support the conclusions it advances.  They note, for example, that any correlation between the rate of economic progress and tax rates is more plausibly explained by the the fact that tax rate changes are motivated by economic conditions. 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 »

Two years ago this month, the Oklahoman and Tulsa World announced a content-sharing agreement in which each paper would carry some stories created by the other. The papers also said they would “focus on reducing some areas of duplication, such as sending reporters from both The Oklahoman and the Tulsa World to cover routine news events.” With the agreement, the Capitol Bureau staffs of the two papers, which had consisted of six reporters a short time earlier, was pared down to three.

For many observers, this shrinking press pool of the state’s two major dailies marked another key moment in the erosion, and potential disappearance, of state political news coverage. According to a 2009 article in the Oklahoma Gazette (unavailable online), the Capitol press corps, which at its peak in 1977 counted 39 reporters, now numbers in the teens.  Smaller papers have eliminated their Capitol reporter positions, TV news stations (other than OETA) cover the Legislature only intermittently, if at all, and even the Associated Press has cut back its staff.  While a small nucleus of experienced, committed Capitol reporters remain, the ongoing capacity of the media to go beyond rewriting press releases and provide Oklahoma with in-depth, informed reporting on public affairs seemed very much in doubt. Read the rest of this entry »

Last month I gave a presentation to a meeting of the State Chamber of Commerce along with a representative from another state policy organization.  I was struck, and frankly dismayed, by the extent to which my co-presenter  spoke as if government and the private sector were opposing forces pitted against one another in a  zero-sum competition. In this view, taxes assessed on businesses and households extract dollars away from productive consumption and investment in the private sector in order to “grow government”.

It is certainly true that a vibrant private sector will always be the main engine of economic growth in a capitalist economy. Public spending can at times crowd out private investment, although, as economists like Brad DeLong argue, during times of sluggish economic growth like the present,  government spending can be vital for keeping the economy from grinding to a halt and for incentivizing private investment. But more fundamentally, this polarizing conception of “government versus the private sector” misses the important ways in which businesses, as well as families and communities, cannot thrive without a strong and effective public sector. You cannot have a vibrant, productive private sector without state and local government helping to: Read the rest of this entry »