On April 5, OK Policy sponsored a forum of leading Oklahoma economists, economic developers, and budget experts to discuss plans to reduce or eliminate the state income tax.  The eight speakers exposed fundamental flaws in the research being used to justify eliminating the income tax, explained what’s really needed for sustained economic growth in Oklahoma, and set out  the dangers that further tax cuts pose to our fiscal stability and economic prosperity. We’ve compiled a 10-minute highlight reel, embedded below, with clips from each of the speakers [click here for the transcript].

You can also watch video of the full forum, download the speakers’ PowerPoint presentations, and find supporting materials from the Economist Forum page. For all of our fact sheets, issue briefs, news coverage and other materials from the income tax debate, please go to the tax reform information page.

View other clips from OKPolicy’s Watch This video series:

• Fighting Hunger, Feeding Hope
• The Economy Bowl
• What is an IDA?
• Elderly parole
• Long term unemployment, 1967-2011
• Packed Oklahoma prisons, rising costs

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 »

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 »

Data Source: Institute on Taxation and Economic Policy

As they ponder plans to cut Oklahoma’s top income tax rate, most lawmakers admit the state cannot afford a cut without eliminating many other tax breaks. They emphasize that we should close loopholes for corporate “special-interests.” Yet as details of their plans emerge, we’ve discovered that the biggest cost would fall not on special-interests, but on hundreds of thousands of low- and moderate-income taxpayers, especially families with children and seniors.

These families would lose a host of broad and effective state tax credits to make way for income tax cuts that primarily benefit wealthier households. A new issue brief from Oklahoma Policy Institute explains how these broad-based credits work and why Oklahoma should preserve them.

The at-risk credits include the Earned Income Tax Credit (EITC), Sales Tax Relief Credit, and Child Tax Credit/Child Care Tax Credit.  The state EITC and the Child Tax Credit help about one out of every four Oklahoma families, and the Sales Tax Relief Credit goes to one-third of all Oklahomans. 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 »

As Oklahoma’s tax debate unfolds, it has been encouraging to hear a rising chorus of influential voices insist that any tax plan must be revenue neutral. Given deep cuts that state agencies have absorbed in recent years and the long-term fiscal challenges the state faces in the years ahead, eroding our revenue base with one-sided  tax cuts would be hugely irresponsible and fiscally unsustainable. One promising approach to ensure that we do not bankrupt the state is for Oklahoma to adopt a pay-as-you-go, or PAYGO, requirement.

State Treasurer Ken Miller recently stated:

Budget writers should adopt a “pay-as-we-go” approach to reducing taxes. To responsibly finance tax cuts, policymakers should eliminate one dollar of spending or credits for every dollar cut in taxes.

This can be accomplished with fiscal discipline, better spending prioritization and a refined approach to budgeting.

Miller’s call for a pay-as-you-go approach was quickly endorsed by both the Oklahoman and Tulsa World. Read the rest of this entry »

The tax cut plans being pushed by Oklahoma lawmakers contain plenty of bad ideas, but one may eclipse them all: Governor Fallin’s tax cliff.

The tax cliff is the result of a badly designed tax bracket structure. Very few other states have such a structure, and for good reason: it creates a major disincentive to work.

In a normal rate structure, the higher rates only apply to income above a certain level. For example, in our current system, families enter the highest bracket of 5.25 percent when they make $15,001 or more in taxable income. However, they don’t pay 5.25 percent on every dollar of income. They pay 5.25 cents out of each dollar at and above $15,001, but they pay only 5 cents of the dollars they earn between $12,201 and $15,000, 4 cents of the dollars between $9,801 and $12,200, and so on.

In Governor Fallin’s plan, entering a new bracket causes the higher rate to apply to every single dollar of taxable income. That means a family with $29,999 in taxable income would not owe any income tax. But if they earned one dollar more, their tax bill would jump to $675. When moving between the second and third bracket, their taxes would jump again by $875. Read the rest of this entry »

Oklahoma Farm & Ranch Museum, Elk City

Could doing away with Oklahoma’s income tax shift taxes not only onto low and middle-income families but also from urban areas to rural areas? Many programs, services, and incentives important for rural Oklahoma rely on our existing revenue structure and the income tax in particular.  In addition, switching to more reliance on other taxes would especially hurt farmers and ranchers.

States without an income tax have to get resources somewhere to fund their core services.  As the chart below shows, the majority of those states look to the property tax to fill the gap.  Every one of the states without an income tax pay more in property taxes per capita than we do in Oklahoma. The average per capita property tax collections in no-income tax states, $1,507, is more than two-and-a-half times that of Oklahoma, $582. Read the rest of this entry »

A new study of state tax costs on business from the Tax Foundation ranks Oklahoma fifth best in the nation for new firms and 16th best for mature firms. Among states in the region, Oklahoma ranked second lowest in business tax costs for new firms and third for mature firms. While Texas ranked slightly ahead of Oklahoma for mature firms (12th versus 16th), the Lone Star state was determined to be 42nd best for new firms, well behind Oklahoma (5th).

The Tax Foundation report, titled “Location Matters: A Comparative Analysis of State Tax Costs on Business”, claims to be the first study of business taxes that provide comparisons of actual state tax burdens. Unlike other studies, the report is intended to “address the bottom line question asked by many business executives: “How much will our company pay in taxes?””

When looking at taxes paid by specific newly-established and mature industries, Oklahoma ranked among the ten lowest-cost states in six of 14 categories. The state’s ranking ranged from 3rd for new call centers, which are calculated to have a total effective tax rate of 3.9 percent, to 31st for the mature capital intensive manufacturing category, with a total effective tax rate of 13.4 percent.

These findings are particularly notable as proponents of cutting or eliminating Oklahoma’s income tax frequently cite a separate study from the Tax Foundation that ranks Oklahoma 33rd in business tax climate.  Whereas that study measures a state’s tax system in relation to the principles of a ‘model business tax structure’, this new study focuses on how much businesses actually pay in taxes. Read the rest of this entry »

Oklahoma Policy Institute Director David Blatt released a statement in response to Governor Fallin’s tax plan, which will be heard in a House committee for the first time this afternoon:

As details emerge about Governor Fallin’s plan, more problems are coming to light. The plan creates huge “tax cliffs” by doing away with marginal rates and taxing all income at the same rate. When a taxpayer moves between brackets, earning one more dollar of income would make taxes owed increase by as much as $875. Fixing this flaw would increase the cost of the Governor’s plan from $340 million to more than $1 billion in the first full year. Even at $340 million, the plan would blow a hole in the budget as we are trying to restore funding after three years of deep cuts.

We also now know that in addition to eliminating important broad-based tax credits that aid families with children, such as the child tax credit and earned income tax credit, the Governor’s plan does away with numerous important deductions, including those for retirement income, Social Security income, and pay to military personnel who have been captured or killed in action. This means that many families with children, seniors, veterans, and persons with disabilities would see a tax increase under the Governor’s plan

We are encouraged that Speaker Steele and Pro Tem Bingman seem committed to making sure that any tax plan is revenue neutral. We also hope that whatever tax reform proposal emerges does not shift taxes onto struggling Oklahomans in order to fund further cuts to the top income tax rate.

OK Policy has prepared a side by side summary comparison of major tax cut proposals that is available here. For all of OK Policy’s information and resources related to the tax debate, see our tax reform information page.

The personal income tax is Oklahoma’s largest single revenue source. In 2011, the state collected $2.412 billion from the personal income tax, or slightly less than one in three dollars (31.7 percent) of total state tax collections. With a strong movement developing to substantially cut and ultimately eliminate the personal income tax, it is important to understand the vital role of the income tax in paying for a broad array of public services.

Income tax revenues are allocated in two ways: a set amount is taken off the top for a number of specific programs, and the rest is divided up by a formula. The programs funded off-the-top include:

• The ROADS fund: In 2012, the Department of Transportation received $255.7 million from the individual income tax for maintenance and construction of roads and bridges, along with small amounts for passenger rail services and public transportation. In 2013 and each year thereafter, the ROADS fund will receive an additional $41.7 million until the fund reaches an annual cap of $435 million. Governor Fallin has proposed increasing the ROADS allocation by $56.7 million annually and raising the cap to $550 million in order to repair the state’s bridges;
• Quality Jobs: Companies that qualify for the Quality Jobs program, the state’s marquis economic development program, receive quarterly incentive payments from personal income tax receipts. In 2011, Quality Job payments totaled $61.8 million.
• Oklahoma’s Promise scholarships:  In 2012, $63.2 million in personal income tax revenues was allocated for Oklahoma’s Promise scholarships, which cover higher education expenses for qualified Oklahoma students. Because of carryover in the program’s trust fund, this amount will decrease to $57 million in 2013. Read the rest of this entry »