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The progressive case for increasing the cigarette tax

by | March 6th, 2017 | Posted in Taxes | Comments (1)

Out of all the revenue options that Oklahoma has to fix a deep budget hole, the one getting the most attention from legislative leaders is increasing the cigarette tax. Last year’s attempt to increase the cigarette tax received a majority of votes in the House, but it fell short of the three-fourths supermajority required by State Question 640 for any tax increase, with Democrats making up the biggest block of no votes.

The Republican leadership is trying again this year for a $1.50 per package increase in the cigarette tax with HB 1841, but to get it done they will need some votes from House Democrats. The biggest objection from Democrats is that a cigarette tax increase is regressive — taxing a larger share of income from the poorest Oklahomans — and would result in a troubling tax shift after recent income tax and gross production tax cuts that predominately benefited wealthy individuals and large corporations.

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Taxing services shouldn’t be all or nothing

by | February 27th, 2017 | Posted in Taxes | Comments (1)

A centerpiece of Gov. Mary Fallin’s FY 2018 Executive Budget is her proposal to expand the sales tax base on services. As she explained in her State of the State address:

“As the economy in the United States has shifted from a manufacturing-based economy to a services-based economy, the way we impose taxes and collect revenue no longer reflects the current economy, but an outdated system that has not changed much since its inception.”

The Governor’s proposal, which is set out in detail in this spreadsheet, would expand the sales tax to all 164 services that are currently untaxed in Oklahoma. Based on current taxable sales, the sales tax expansion is projected to generate $940 million in new revenue in FY 2018, of which $840 million would be available for appropriation. Under the Governor’s budget plan, this additional revenue, along with increases in the cigarette tax and motor fuel taxes, would be enough to make up the state’s budget shortfall and allow for the elimination of the sales tax on groceries and the corporate income tax.  The tax would raise an additional $648 million for cities and $121 million for counties.

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Budget Update: Key takeaways from the February Board of Equalization meeting

by | February 23rd, 2017 | Posted in Budget, Taxes | Comments (0)

The State Board of Equalization met on February 21st to approve revised revenue estimates for FY 2017 and FY 2018. This estimate will be binding on the Legislature as it develops the FY 2018 budget over the coming months.

Here are our main takeaways from the new certification:

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Governor’s budget shows how bad Oklahoma’s fiscal health has gotten (Capitol Update)

by | February 17th, 2017 | Posted in Budget, Capitol Updates, Taxes | Comments (1)

Steve Lewis served as Speaker of the Oklahoma House of Representatives from 1989-1991. He currently practices law in Tulsa and represents clients at the Capitol.

Looking at Governor Fallin’s FY-18 budget proposal makes one realize how poor the fiscal condition of the state is. If the Legislature and the governor were to dedicate themselves to doing everything necessary to work our way out of the current budget dilemma, it still would take years. Our recent practice of patching things together with tax cuts and budget cuts, robbing various funds, borrowing, and betting on the come that there will be a quick turnaround in the Oklahoma economy has only dug the hole deeper. At least the governor and many in the Legislature have concluded that will no longer work.

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OK PolicyCast Episode 24: All about the revenues

by | February 14th, 2017 | Posted in Budget, Podcast, Taxes | Comments (0)

You can subscribe to our podcast on iTunes, Google PlayStitcher, or RSS. The podcast theme music is by Zébre.

The OK PolicyCast is back!

Governor Fallin surprised many observer of Oklahoma politics by calling for dramatic revenue increases and major tax reforms in her State of the State address. In this podcast, we discuss the Governor’s ideas, what’s most likely to make it through the Legislature, and what other ideas Oklahoma Policy Institute has put forward to fix our state’s budget hole.

You can subscribe at the links above, download the podcast here, or play it in your browser:

Oklahoma’s wind subsidies are dwarfed by subsidies to the oil and gas industry

by | February 14th, 2017 | Posted in Taxes | Comments (4)

One certainty about the 2017 legislative session is that tax breaks for the wind industry are going to be a prime target for lawmakers looking for ways to address the state’s short-term budget gap and long-term structural budget deficit. Close to 20 bills have been filed that would limit or eliminate subsidies for wind producers, and Governor Fallin in her FY 2018 Executive Budget called for wind production to be taxed.

While it is true that subsidies for the wind industry have been rising, the reality is that they pale in comparison to those the state provides to oil and gas producers. Oklahoma’s standard tax rate of 7 percent on oil and gas production has been in effect since the 1970s, but over the years, various exemptions were put in place to subsidize different kinds of production. Now, under legislation passed in 2014, almost all new wells are taxed at just 2 percent for the first 36 months of production before reverting to the standard 7 percent rate. In addition, horizontal wells and deep wells drilled prior to July 1, 2015 are taxed at 1 percent and 4 percent respectively for 48 months. As more production is taxed at lower rates, the effective tax rate on all gross production in the state has plummeted from over 6 percent in FY 2012 to under 3.5 percent in FY 2015, according to data from the Oklahoma Tax Commission. 

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Tax cut triggers are anything but fiscally responsible

by | February 13th, 2017 | Posted in Taxes | Comments (0)

Ten states, including Oklahoma, have enacted tax cuts in recent years that are deferred to a future date based on state revenues reaching a certain level or rate of growth. A new report by the Center on Budget and Policy Priorities, a national think tank, makes a convincing case that while tying tax cuts to “triggers” may seem fiscally responsible at first glance, triggers are likely to harm states’ ability to provide critical service for their residents.

Twice in the past decade, Oklahoma lawmakers have passed tax cuts triggered by future revenue growth. The first, approved in 2006, lowered the top income tax rate from from 5.5 to 5.25 percent and took effect in 2012. The second was passed in 2014 and lowered the top rate to 5.0 percent in 2016, with a second cut to 4.85 percent that could take effect in 2018. The Center on Budget’s report identifies several flaws with triggers, all of which apply to Oklahoma’s experience.

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Introducing the newly updated Online Budget Guide

by | January 19th, 2017 | Posted in Blog, Budget, Featured Budget & Tax, Taxes | Comments (0)

To understand how state and local governments operate in Oklahoma, we especially need to understand the budget. The budget is how we allocate resources across all of our publicly-supported institutions – not just state and local government agencies, but also many private businesses and non-profits that receive public funds to do such things as build roads, operate nursing homes, or provide child care.

The budget is a financial document, but it is also a moral document. How we allocate dollars reflects our common priorities and affects our common achievements. The same is true of how we divide the responsibility to pay for our public services and infrastructure. The taxes and other revenues collected by government represent each person’s investment in shared prosperity.

OK Policy’s Online Budget Guide, fully updated for 2017, is a tool for users to understand Oklahoma state and local governments, particularly how they collect and spend money. In the Online Budget Guide, we look at all sources of funding, not just the major taxes, and all spending, not just state appropriations. To the extent possible, we provide data showing how Oklahoma compares to other states and how spending and taxes have changed over time. We examine how the state budget is developed, and explore the serious fiscal challenges Oklahoma confronts, now and in the future.

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Is Oklahoma due for a change in direction on the budget? (Capitol Updates)

by | January 6th, 2017 | Posted in Budget, Capitol Updates, Taxes | Comments (1)

Steve Lewis served as Speaker of the Oklahoma House of Representatives from 1989-1991. He currently practices law in Tulsa and represents clients at the Capitol.

The turning of a new year is a time when people tend to reflect on the past and look toward the future. I’ve been thinking about the past few legislative sessions and what they mean for the upcoming session. A famous quotation from Shakespeare comes to mind that says “what’s past is prologue.” I’m not strong on interpreting literature, but I suppose this means that what has happened in the past leads to what will happen next. Or said another way, it could mean that the past provides the context for what will happen next. Or it could simply mean we’re in for more of the same.

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STATEMENT: Revenue certification brings tidings of discomfort and woe

by | December 21st, 2016 | Posted in Blog, Budget, Taxes | Comments (2)

Oklahoma Policy Institute issued the following statement after the State Equalization Board certified $869 million less for next year’s budget than this year’s authorized budget:

As we enter the holiday season, Oklahomans today learned that the state faces a budget shortfall of over $850 million for the year ahead. The news of another massive shortfall is especially troubling to the tens of thousands of dedicated teachers and state employees who have already gone years without a raise; to children subject to larger class sizes and inexperienced teachers; to those on long waiting lists for critical mental health, substance abuse, and disability services; to health care and social service providers whose reimbursement rates have been repeatedly cut; and to all Oklahomans who have seen a steady decline in public services after years and years of budget cuts.

This year’s shortfall is the result not only of a struggling economy but of policy choices that have shrunk our revenue base and resorted to one-time revenues to plug budget holes. The result is a structural budget deficit that won’t be fixed just by a recovery in oil and gas prices.

This session, lawmakers will have to make the difficult decisions to boost recurring revenues in order to avoid devastating cuts and to address the teacher pay crisis and other urgent needs. All options should be on the table, including reversing some of the $1.5 billion in tax cuts that have been enacted in recent years, as well as closing tax loopholes, broadening the sales tax to more good and services, and raising certain excise taxes.

The one silver lining to today’s announcement is that another ill-timed tax cut is now unlikely to be triggered automatically next year. Already, overall state appropriations are 15 percent below where they were a decade ago when adjusted for inflation and will likely fall again next year. Knowing that it will take at least several years for revenues to recover to where they were before this latest economic downturn, lawmakers this session should cancel the next tax cut or ensure that it can only take effect once the budget has time to recover.

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