Governor Mary Fallin

In her State of the State address, Governor Fallin laid out numerous areas where Oklahoma needs to invest to fix serious problems. She mentioned the shortage of troopers on the highways, the millions still owed to local governments to reimburse emergency expenses, the dilapidated state capitol and medical examiner’s office, crumbling bridges, high infant mortality, a beleaguered foster care system, and unfunded teacher health benefits.

These diverse problems have a common denominator: they are all substantially caused by inadequate funding to core public services after three straight years of budget cuts. Rather than setting a bold course for Oklahoma’s future, we are playing catch-up just to repair what we have allowed to fall apart.

In the same speech, Governor Fallin proposed a huge cut to the personal income tax. The plan is estimated to cost $350 million in the first full year. It also includes triggers to automatically cut taxes again any time the budget begins to recover.

The effect is that for the foreseeable future, tax cuts are shoved to the front of the line. It won’t matter what problems or responsibilities we face as a state. It won’t matter if our infant mortality stays high, if our water isn’t safe, if our schools are failing, if our communities are devastated by extreme weather. Whenever there is additional revenue, the number one priority will always be tax cuts. Read the rest of this entry »

What’s up this week at Oklahoma Policy Institute? The Weekly Wonk is dedicated to this week’s events, publications, and blog posts.

This week OK Policy and the Corporation for Enterprise Development (CFED) co-released the 2012 Assets and Opportunity Scorecard, which showed that more than one in four Oklahoma households are “asset poor,” meaning they have little or no financial cushion to rely on in an emergency.  The Tulsa World and the Oklahoman covered Oklahoma’s Scorecard results in depth.

We pointed out that if legislators make the choice to prioritize tax cuts, they cannot pretend to be blameless when funds aren’t available for crucial services.  We hosted a debate about whether or not to require a prescription for pseudoephedrine, featuring Jessica Hawkins, the Director of Prevention Services for the Oklahoma Department of Mental Health and Substance Abuse Services, and former state Senator Ed Long.

Finally this week, the Associated Press quoted us in an article on a regional trend of GOP action to axe state income taxes. The Tulsa World presented a summary of our issue brief defending the income tax. The Journal Record cited our work on worsening poverty in Oklahoma and legislative proposals that would make it even harder to be poor. The OK Policy Blog featured a short video about ‘community schools,’ a comprehensive approach to education that makes the school the hub of the community.

Numbers of the Day

• $136 – Average tax increase on elderly Oklahoma couples with $35,000 in income under a legislative proposal to eliminate a slate of broad-based tax credits and exemptions.
• 8,100 – Number of manufacturing jobs added in Oklahoma from January to December of 2011, up 8.4 percent for the year.
• 178, 020 – Number of Oklahoma children under age 6 who need daily child care during the week because their primary caregiver/s participate in the labor force, 2009
• 6,592 – Number of Oklahomans who tested for their GED in 2009; 70.1 percent received their GED, just above the average national pass rate of 69.4 percent.
• 11^th – Oklahoma’s rank among the states in percentage of households with no computer in their home, 2010

In The Know, Policy Notes

• The Foundation for Child Development finds that states with higher taxes and greater investment in public programs score highest for Child Well-Being.
• The Economic Policy Institute points out that the massive tax cuts propose by GOP presidential candidates don’t square with professed concerns about public debt.
• Demos shows that the pay premium gained by joining the federal workforce is reserved largely for less-skilled workers, and rather than disparaging public sector pay levels, we should embrace them as standards from which the private sector has shamefully deviated over the last three decades.
• The Shriver Center examines the trend of states issuing public benefits through bankcards and the implications of card fees for low-income people.
• Bloomberg Businessweek reports on falling premiums for Medicare Advantage, a private health insurance option for Medicare beneficiaries.

Rep. Earl Sears

Last week I participated in a StateImpact Oklahoma forum on the state budget with Rep. Earl Sears, the Chair of the House Appropriations and Budget Committee (R-Bartlesville),  and Sen. Tom Adelson (D-Tulsa).  An audience member asked the legislators what they would do to ensure that more individuals with mental illness were provided treatment in the community rather than in jails and penitentiaries.

Rep. Sears responded by saying that he is very supportive of the work being done by Commissioner Terri White and the Department of Mental Health and Substance Abuse Services to raise awareness about the prevalence and cost of mental illness. In particular, Rep. Sears praised the Department’s ‘Smart on Crime’ initiative‘ that uses evidence-based programs to reduce recidivism and decrease demand for correctional beds. By diverting non-violent offenders into programs such as drug court, mental health court, or other similar programs, Smart on Crime can reduce incarceration and ultimately save substantial tax dollars. The initiative, however, requires an upfront investment estimated at close to $100 million. And, Rep. Sears stated ruefully, we just don’t have $100 million to invest in Smart on Crime. Read the rest of this entry »

Arthur Laffer

Some Oklahoma politicians have trumpeted a report by economist Arthur Laffer to claim that eliminating the state income tax will fuel an economic boom. Laffer is best known for the Laffer Curve, which he famously sketched on a napkin while meeting with Dick Cheney in a hotel bar. It went on to form the basis of the Reagan administration’s trickle-down economics.

The Laffer Curve makes an obvious point: government revenues peak at a tax rate somewhere between zero and one-hundred percent. In the lower half of the curve, raising taxes will increase revenue, but go too high and the reduced economic activity due to excessive taxation will result in lower revenue.

The argument was not original to Laffer. It had been stated previously by thinkers ranging from 14th Century Arab philosopher Ibn Khaldun to John Maynard Keynes, the founder of modern macroeconomics. What made this idea influential in recent decades was not any special insight into economics, but its powerful appeal for politicians. Rather than explaining how tax cuts (popular) would be paid for by budget cuts or increases in other taxes (unpopular), they could simply claim that the tax cuts would pay for themselves. Read the rest of this entry »

Oklahoma Policy Institute is seeking an experienced and effective outreach coordinator to lead the effort to educate Oklahomans about the need to protect our tax base and ensure adequate funding of public services.  A coalition of organizations for fair and sustainable budget and tax policies is emerging.  The outreach coordinator will play a critical role in developing the strategy for this coalition, developing and spreading the coalition’s message, expanding membership, and executing a shared agenda for achieving the coalition’s goals.

The Outreach Coordinator will be a half-time contract position (with the possibility of additional hours) based in Oklahoma City.  Click here for a full description of the position and instructions for how to apply.

Send a resume and cover letter to David Blatt, Director, Oklahoma Policy Institute at jobs@okpolicy.org by Tuesday, January 17, 2012.  Please be sure to note in the subject line of the email, Outreach Coordinator and describe your availability and salary requirements in the letter. 

Last week we reported that next year’s revenues are expected to be 7 percent below their levels of six years ago (FY ’07), even though costs are higher due to inflation, population growth, and increased caseloads

Elsewhere, people seem to have read a different budget estimate than the one we saw. Two elements of the discussion show a growing disconnect between Oklahoma’s budgetary politics and reality.

First, Governor Mary Fallin and many others continue to advocate for reduction or elimination of the state income tax. A closer look at the budget shows that, of the $400 million forecast revenue growth from FY ’11 to FY ’13, fully  half comes from the income tax. Overall, the income tax is expected to provide $2.5 billion next year for General Revenue, the HB 1017 Education Reform Fund, and the ROADS Fund, which has helped restore the worst of our roads and bridges. Cutting this vital revenue support makes no budget sense. It also makes no economic sense. Read the rest of this entry »

On Tuesday, the Board of Equalization certified a preliminary estimate of the revenues available for next year’s budget. The numbers confirm that while the worst of the fiscal crisis is over, the state is experiencing a slow, incomplete recovery that will fall far short of restoring key services to pre-downturn levels.

The preliminary FY ’13 estimates, developed by the Oklahoma Tax Commission and Office of State Finance, will form the basis for the Governor’s Executive Budget that will be delivered in early February; the Board will meet again in mid-February to provide revised estimates that will be binding on the 2012 Legislature. As we see in the chart below, collections to the General Revenue (GR) fund are expected to continue their recovery next year from their collapse during the recession of 2008-09. Next year’s GR is estimated at $5,540 million, which is 19.9 percent greater than FY ’10.  Yet next year’s revenues are expected to remain 7 percent below their levels of six years ago (FY ’07), even as the cost of providing services rises due to inflation, population growth, and increased caseloads. Read the rest of this entry »

For the eighteenth consecutive month since May 2010, General Revenue (GR) collections grew compared to the prior year. October GR was $24.3 million, or 6.3 percent, above collections in October 2010. All major taxes brought in more revenue than one year ago.

Read the rest of this entry »

While some state leaders continue to discuss making top-down cuts to the income tax or eliminating it entirely, a new OK Policy issue brief shows why that policy is ill-advised.

Before the economic downturn, the income tax brought in more than $2.5 billion a year. In FY 2010, it made up about one-third of all state tax collections. It is the single largest source of support for education, health care, transportation, public safety, and other necessities. The state could not provide basic, essential services without income tax revenue unless other taxes were drastically increased.

The issue brief shows that shifting to greater reliance on other taxes would disadvantage local business, create more risk of revenues not being adequate to needs, and put a disproportionate burden on low- and moderate-income Oklahoma families. Contrary to the claims of its critics, Oklahoma’s income tax is not a hindrance to the state’s business climate or a spur for people to move out of state. In fact, Oklahoma is out-competing most states that lack an income tax.

After three years of repeated cuts to the state budget, the state has fallen further behind in funding teacher salaries and benefits, staffing our prisons and juvenile facilities, and ensuring the safety of children at risk of abuse and neglect, among other vital functions. We face growing obligations to fund our public pensions, protect our water system, repair our crumbling infrastructure, and take care of an aging population. In this context, cutting the income tax is the wrong priority for Oklahoma’s future.

You can download the full 8-page issue brief here. Find more presentations, fact sheets, blog posts, op-eds and newspaper articles addressing Oklahoma’s tax reform debate here.

Highway 51 Bridge between Wagoner and Coweta. Photo by flickr user doug_wertman used under a Creative Commons License.

Last week, Gov. Fallin announced a plan to fix the state’s decaying bridges by 2019. The proposal involves putting more money in the ROADS fund, which receives a portion of income tax revenues that would otherwise go to the state’s General Revenue Fund.

OK Policy released a statement on the Governor’s plan that was mentioned by both The Oklahoman and The Tulsa World:

We welcome Governor Fallin’s focus on fixing Oklahoma’s crumbling bridges. However, we must note that her proposal would be paid for entirely by diverting more income tax revenues from an already cash-strapped state budget. At the same time, Governor Fallin and other state leaders are promoting further cuts or outright abolition of the income tax. This should remind us that the income tax remains vital for funding Oklahoma’s needs and that we cannot meet our obligations to pay our bills while undermining our revenue base.

The Oklahoman included a response from the Governor’s spokesperson that the effort to fix bad bridges “does not reflect a lack of commitment to other areas of government.” Fallin’s office told The Oklahoman, “much of the additional transportation funding would come from growth revenue, and Oklahoma has enjoyed nice growth in revenue this fiscal year.” Read the rest of this entry »

Photo by flickr user brunkfordbraun used under a Creative Commons License.

At the first meeting of the legislature’s tax reform task force, both chairmen expressed support for making top-down cuts to Oklahoma’s income tax or eliminating it entirely. In a previous post, we explained why that’s a bad idea. In this post, we present three alternative reforms that would modernize the income tax and genuinely improve Oklahoma’s competitiveness and economy.

1. Update the Personal Exemption

Oklahoma’s personal exemption, which allows households to deduct a set amount from taxable income for each member, has not been changed since the early 1980s. The impact of inflation since that time means today the exemption is worth a just fraction of what it once was. Read the rest of this entry »

A study released today finds that inverting state tax structures—whereby the highest income earners would be taxed at the current percentage of income for the lowest income earners, and vice versa—would raise more than $4 billion in new revenue for Oklahoma (a 35 percent increase). The additional revenue would immediately eliminate state budget shortfalls and avoid the serious consequences of budget cuts.

The report, titled “Flip It to Fix It: An Immediate, Fair Solution to State Budget Shortfalls,” attributes a large part of states’ current deficits to regressive tax structures that are designed to fail.

Current vs. Inverted State and Local Tax System in Oklahoma (click for larger image)

“Trying to raise adequate revenue through a regressive tax structure—where a greater percent of income is demanded of the poor than the well-off—is like trying to squeeze water from a stone,” said Karen Kraut, coordinator of state tax policy at United for a Fair Economy and co-author of the report.

[See OK Policy's press release announcing the report here.]

In 2007, the poorest 20 percent of Oklahoma households paid 9.9 percent of their income in sales, property, and income taxes, which is nearly twice as much as the 5.9 percent of income paid by the wealthiest 1 percent. The cut to the top income tax rate set to go into effect next year will worsen the disparity, as the wealthiest 20 percent of Oklahomans will take home nearly three-fourths of the tax cut while the bottom 60 percent of Oklahomans together receive only 9 percent of the benefit. Read the rest of this entry »