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 Oklahoma income tax ‘wars’ have gone national!  The latest salvo was fired last week by the Wall Street Journal in an editorial urging Oklahoma to enact major income tax cuts.  While the editorial offers nothing new (except for a high level of snark), it is worth noticing because it reveals the intellectual bankruptcy of the tax-cut case. Read the rest of this entry »

Will Oklahoma families pay higher or lower taxes under HB 3061, the tax plan agreed to last week by Governor Fallin and legislative leaders? The answer depends on a number of variables, including household income, family size, and whether or not they claim itemized deductions on their federal and state tax return.

The tax policy specialists at ITEP, the Institute on Taxation and Economic Policy, calculated the change in tax liability for sample family types. They found:

• A single parent with two children earning $20,000 per year will pay $45 more tax under HB 3061 than currently. This is primarily due to changes in the lower tax brackets that would tax more of their income at a higher rate.
• A single parent with two children earning $40,000 per year will pay $75 less tax. This family would retain their current deductions and credits and would have part of their income taxed at a lower top rate.
• A two-parent family with four children earning $100,000 per year will pay $134 more tax under the plan. Their taxes would increase because the additional tax from losing their personal exemptions (currently $1,000 per family member) and the itemized deduction for state income tax would exceed the benefit from a lower top rate.
• A two-parent family with four children earning $250,000 per year will pay $93 less tax. In this case, the gains from the top rate cut will more than offset the loss of personal exemptions and the deduction for state income tax.

Looking at all families, ITEP calculates that roughly one in five families earning between $17,000 and $85,000 will pay higher taxes, while about three in five will pay less. The middle- and upper-middle taxpayers with income between $85,000 and $173,000 are likeliest to see a tax hike: in this income range, 43 percent of households are projected to pay more tax, while 53 percent will pay less.  At the highest income levels, almost all families will do substantially better. ITEP calculates that among the top 5 percent of households, 88 percent will pay less tax, compared to just 10 percent who will pay more. A four-person family earning $1 million can expect a $1,528 tax cut under the plan.

Overall, according to an analysis from the Oklahoma Tax Commission, the plan will lower taxes by $98 million in 2013. Of the total tax cut, just 13 percent of the benefit – $12.6 million – will go to households earning under $50,000, who represent 60 percent of all Oklahoma households. Conversely, 41 percent of the total cut – $40.6 million – the highest 4 percent of households, those earning over $200,000. Some $16 million in tax reductions would go to the roughly 9,600 Oklahoma households that earn over $1 million per year.

The bill has passed out of conference committee and is awaiting final passage in the House and Senate. Click here to contact your legislators about HB 3061.

As reported in CapitolBeatOK, a group of 30 prominent business executives, civic leaders and philanthropists recently sent an open letter to the Governor, Speaker and Senate Pro Tem urging them not to adopt a trigger mechanism that would lead to automatic future tax cuts.  The signatories represent business leaders from both political parties, including George Kaiser, Kirk Humphreys, Tom Ward, Larry Mocha, Stacey Schusterman, Ken Fergeson, Bob Ross and Stan Lybarger.  The letter reads in full [click here to download a copy]:

An Open Letter to Governor Mary Fallin, Speaker of the House Kris Steele and Senate President Pro Tempore Brian Bingman:

As business executives and community leaders concerned with Oklahoma’s fiscal stability, we urge you to reject proposals to adopt tax trigger mechanisms that would automatically lower Oklahoma’s income tax in future years based on future growth in state revenue.

We are of diverse opinions as to whether cutting Oklahoma’s top income tax rate is the right policy at this time. However, we are all in strong agreement that this legislature should not bind the hands of future legislatures by enacting a tax trigger.

It is the responsibility of each legislature to make decisions based on the state’s needs at the time. Once tax cuts are written into law, it will be almost impossible, constitutionally or politically, to change course, whatever the situation.

Enacting future tax cuts now would especially hinder our ability to address future unforeseen circumstances, such as natural disasters or an abrupt economic downturn.  As the Oklahoman stated in an editorial, “ income tax triggers are a one-way ticket to lower taxes no matter what happens to the economy.”  University of Oklahoma President David Boren notes that, “We have no crystal ball. That is why we should examine tax and budget decisions on an annual basis. That is the conservative approach.”

Deciding tomorrow’s tax cuts today would tie the hands of future legislators, make them less accountable to their constituents, and limit their ability to make the best decisions based on the circumstances that they face.  We sincerely hope you will reject the concept of triggers that would mandate future tax changes..

Sincerely,

Bob Ross	Tom Ward	Kirk Humphreys
Mike Neal	Francis Rooney	John W. Gibson
Bill Cameron	Ken Lackey	Chet Cadieux
Henry Zarrow	Don Millican	George Kaiser
Ken Fergeson	Stacy Schusterman	Melvin Moran
Stan Lybarger	Meredith Siegfried	Becky J. Frank
Fredrick Drummond	Jody Parker	Alan Armstrong
Frod Drummond	David Adams	Guy L. Berry
Larry Mocha	Ken Levit	Robert C. Poe
Vince LoVoi	Renzi Stone	Jeff Dunn

For more on why triggers are bad policy, see our blog posts “Politicians make bad fortune tellers” and “The terrible thing about triggers“.  For full information on the tax debate, go to our Tax Reform page.

National Assessment of Educational Progress, 2011

It’s no secret that Oklahoma lags behind other states in student achievement. In 2011, Oklahoma fourth graders’ reading scores ranked 40th among all states (plus Washington DC and Department of Defense schools). Among eighth graders, Oklahomans’ reading scores put us at 41st. Math scores were only slightly better, at 38th in the nation for both fourth and eighth graders.

It’s not entirely fair to compare states in this way, since they can be dealing with very different student populations. Oklahoma is a high-poverty state, and a large number of our children face difficult challenges that come with poverty: a less stable home environment, parents who may not have the time or ability to read to their kids, fewer successful role models, inadequate nutrition, and more. Variation in child poverty rates can explain more than 40 percent of the variation in average reading and math scores across states.

Data from the National Assessment of Educational Progress (NAEP) does give us a way to remove this effect and see how similar groups of children are faring across states. Scores on this national test can be sorted into children eligible for the free- or reduced-lunch program and those who are not eligible. This program is available only to families with incomes at or below 185% of the poverty line.

When we separate these two groups of children, the results are surprising. Oklahoma is actually performing at or better than the national average for free/reduced lunch eligible children. Our 2011 rankings on 4th and 8th Grade Math and Reading tests ranged from 20th to 25th. Read the rest of this entry »

A poll released today by the Oklahoma Advocacy Project reveals strong opposition among Oklahomans to proposals for reducing and eliminating the state income tax. The poll finds that large majorities oppose a tax cut if it means less funding for schools, roads, and public safety. The poll also shows voter concern that cutting the income tax will lead to higher sales and property taxes to make up for lost revenues.

The poll reveals that while voters may support phasing out the income tax in theory, support evaporates when voters are presented with concrete choices and consequences involved in proposals to reduce or eliminate the tax cuts. In particular:

• A plurality of voters (42 percent) oppose decreasing the state income tax and paying for it by eliminating popular tax credits like the child tax credit and the sales tax relief credit, as has been proposed by Governor Fallin and some legislators. Opposition to the proposal increases significantly (rising 28 points to 70% oppose), when voters are informed that the proposal will increase taxes for most families with children and seniors who earn under $50,000 a year while the largest tax cuts will go to the wealthiest five
  percent of Oklahoma households. Read the rest of this entry »

What is the best course for strengthening Oklahoma’s economy and providing broad-based benefits for Oklahoma families?

Proponents of cutting or eliminating the state’s personal income tax claim that doing so will boost the state’s economy. However, as University of Oklahoma economist Dr. Cynthia Rogers explained at our recent economists’ forum, economic research is highly inconclusive about the relationship between state taxes and economic performance. While the extent to which tax changes cause growth is not clear, the research clearly establishes that tax cuts that are funded by reducing spending on productive public goods such as infrastructure and education leads to economic decline.

While there is no clear connection between low taxes and economic success, there is a clear and strong correlation between the educational attainment of a state’s population and its economic well-being.  The chart below, created by the Massachusetts Budget Project based on 2009 Current Population Survey data,  plots all fifty states based on the percent of its workforce with a bachelor’s degree and the medium hourly wage worker of its workers. Medium hourly wage, which is the middle wage of all wages paid to workers, is one of the best measures of a state’s economic well-being because it ignores the effects of extremely high wages of a few workers and provides a fair picture of what a middle-class employee earns. Read the rest of this entry »

While the new federal health law has expanded consumer guarantees for minimum health benefits, Oklahoma is poised to move in the opposite direction. Embedded in an ‘interstate compact’ bill to allow out-of-state insurers to sell policies in Oklahoma is a provision that could nullify several of the state’s existing consumer protections. Language in SB 1059 appears to exempt both out-of-state and in-state insurers from state laws regarding minimum coverage and benefits offered by health insurance policies.  This bill would turn back the clock on our health care system and deprive Oklahomans of essential medical care that they rely on their insurance to provide. Read the rest of this entry »

Despite frequent claims by proponents of cutting or eliminating Oklahoma’s personal income tax , it is a myth that tax revenues grew because Oklahoma cut income tax rates in the mid-2000s.  Their claims are based on highly selective use of data and flawed methodology that is contradicted by more careful analysis.

We can trace the myth that tax cuts sparked revenue growth to last year’s study by Arthur Laffer and his colleagues for the Oklahoma Council of Public Affairs. This study has served as the basis for the Governor’s tax cut proposal and various bills introduced this session. In the report, Laffer contends:

Oklahoma has demonstrated the dynamic effects of tax cuts. For example, prior to personal income tax cuts beginning in FY-2005, the annual state sales tax growth rate was 2.7 percent for the preceding four years. Once the personal income tax cuts began in FY-2005, annual sales tax growth for the following five years was 6.6 percent.

The growth in sales tax revenue means people were buying more things, a sure sign of an improvement in the state’s economy. But it is a huge methodological flaw to simply compare growth rates in two period and attribute the difference to a single, specific policy change. To do so is to claim causation when there is only correlation, and these are two very different things. Read the rest of this entry »

Over the past two years, Oklahoma’s revenue collections have been on a steady path to recovery. For the first nine months of FY 2012, collections to the General Revenue fund (GR) are up 22 percent compared to the same period two years ago. As the chart below indicates, tax collections have still not fully recovered from their steep drop during the 2008-09 recession. Year-to-date GR remains 7 percent below its pre-recession peak and below the levels of six years ago (without adjusting for inflation or population growth).  Yet through February, monthly GR collections had been up compared to the same month from the prior year for 22 straight months. Total Gross Receipts to the Treasury (GRT), which includes more taxes than the General Revenue fund, was up for 24 consecutive months.

This month, however, there are signs the revenue recovery is stumbling. Last week, Treasurer Ken Miller announced that Gross Receipts to the Treasury fell modestly in March, down 0.3 percent compared to the same month one year ago. The drop was due primarily to gross production taxes, which came in $38.1 million, or 36 percent, below last March. Miller noted that low natural gas prices have now led to four consecutive months of declining gross production revenues and he anticipates continued difficulties: Read the rest of this entry »

In a recent editorial, the Tulsa World questioned the call that is frequently heard to ‘right-size’ state government. After three successive years of deep cuts to public services, the editorial asked ‘where does it end?’:

But how do we define right-sizing? Is government the right size if there aren’t enough correctional officers to handle prison unrest? Is it right-sized if children are crowded into classrooms? Is it the right size if sex offenders cannot be properly supervised? Is it the right size when DHS caseloads are so high that the vulnerable slip through the cracks?

The chart below provides numerical support for the idea that state government has shrunk dramatically in recent years. As a share of state personal income, state appropriations are at their lowest level in at least three decades. In FY 2011, the state appropriated budget of $6.77 billion represented just 4.9 percent of  state personal income ($137.8 billion). This is almost a full percentage point below the historical average of 5.8 percent over the past 25 years. This year, with appropriations having been cut by a further 2.4 percent and state personal income rising, the share will fall even further.

Source: Bureau of Economic Analysis (State Personal Income), OK Policy (State Appropriations)

As we showed in an earlier blog post, state tax collections are also at an historic low and are failing to keep pace with growing costs and growing needs. Rather than being bloated and in need of right-sizing downward, the question we must now face is whether years of underfunding have shrunk state government to the point where it is no longer capable of performing the core functions that Oklahomans expect: educating our children, training our workforce, maintaining our infrastructure, protecting our communities, and aiding our most vulnerable family members and neighbors

Ken Fergesen, a resident of Altus, is Chairman of NBC Oklahoma, and is active in banking, farming, civic, social and cultural organizations.. He is a past President of the State Chamber of Commerce.

I am really concerned about our State.  The drum beat at 23^rd and Lincoln to eliminate Oklahoma’s income tax has me worried on many levels.  I’m afraid that I haven’t paid as close attention to the arguments until a representative from Oklahoma Council of Public Affairs spoke at the Altus Rotary meeting the other day.  That was when I realized that the proponents of eliminating the income tax were really single-purposed: ‘it’s all about business.’

I am also very pro-business and want our Oklahoma to have a healthy business climate.  I saw former Oklahoma Congressman Dave McCurdy recently and it reminded me of going with him to California and recruiting businesses to expand or move to Oklahoma, and preferably to his district.  When we called on CEOs of Fortune 500 companies, their first questions were about quality of life, not about tax rates.  They were concerned about educational and cultural opportunities for their employees.  Of course it is important to have a competitive business environment, and we do.  Oklahoma has a very favorable tax burden, tax incentives and cost of doing business, and a low cost of living for its citizens.

When I chaired the Oklahoma State Chamber, I traveled all across Oklahoma and visited many of its towns in every county.  I couldn’t help but notice communities that have flourishing arts and cultural activities were on the move, business was being done and cash registers were ringing.  At the time those observations were purely anecdotal, but now there are economic impact studies that prove my observations. Read the rest of this entry »

The income tax has been the top subject of debate this legislative session. Governor Fallin and some legislative leaders have promoted “bold proposals” to cut, and ultimately repeal, the state personal income tax.Yet after three straight years of budget cuts, funding levels remain in a deep hole. At a time when our children’s class sizes are growing, our roads and bridges are in disrepair, our prisons are critically understaffed,  higher education tuition is escalating, and we’re not treating many with mental illness and disabilities, it is simply wrong to make further tax cuts our priority.

Now is the critical time for Oklahomans to make the case against tax cuts directly to legislators. A working group of Republican legislators and  cabinet members are making decisions now behind closed doors. Advocates are not at the table – but can make their voices heard. Click here for a list of the working group members, along with their email addresses and phone numbers. We’ve set it up so you can copy and paste the email addresses of all the working group members into a single email. We’ve also included information on how to identify and reach your own Representative and Senator. Read the rest of this entry »