As we prepare to celebrate OK Policy’s fifth anniversary, we’ve gone back and selected our top five greatest hits from our blog. The winners, selected by staff, all generated strong traffic and buzz, and exemplify our efforts to apply careful research and accessible analysis to state policy issues. In chronological order:

• A State Question parable (Oct. 2010): The 2010 battle over SQ 744, which would have entrenched an education funding formula in the state constitution, was a defining moment for OK Policy, as our research was widely cited in the campaign to defeat the measure. Here we used a parable about a misguided home improvement plan for a family whose house is in disrepair to suggest why SQ 744 was the wrong solution to a real problem.
• Get a job: Why restricting employment for ex-felons is counterproductive (May 2011): When the elected mayor of Pawnee was barred from taking office because of a prior felony conviction, the case drew national attention. Our blog post, showing how Oklahoma law puts up barriers to ex-felons pursuing a long list of professions, even when the job has no connection to their crime, generated a long series of anguished comments from ex-felons and their family members affected by these restrictions.
• New insurance rules throw out baby with the bathwater (Dec. 2011):  This piece examined Insurance Commission rules that exclude newborns from coverage on individual health insurance plans in Oklahoma. We worried that posting it between Christmas and New Years last year might limit its audience. Bu the issue struck a nerve and the post generated the most hits and comments of any blog post up to that time. Beware sad baby!
• Who’s behind the assault on the income tax? (April 2012):  As efforts to abolish the state personal income tax failed to gain steam among Oklahomans,  many wondered who the supporters pushing this bad idea really were. This post made the case that besides Governor Fallin and a few state legislators,  the only champions were on the payroll of the Oklahoma Council of Public Affairs or out-of-state advocacy groups like Americans for Tax Reform and ALEC.
• What really happened with WIC? (Oct. 2012):  Last fall, when the State Health Department cancelled their longstanding contract with Tulsa Planned Parenthood to provide child nutrition services for low-income mothers and babies (WIC), we decided to dig deeper into the data and found that their explanation simply didn’t add up. Our blog post pointing out the inaccuracies in the Department’s claims was picked up by the Huffington Post, among others.

Michael Lipsky is a Distinguished Senior Fellow at Demos. This post originally appeared on the Policy Shop blog.

For most of its history ALEC has operated in the background, but its influence recently drew the spotlight when its promotion of “Stand Your Ground” laws came to light in the wake of the killing of Trayvon Martin in Florida.  Faced with the potential of consumer boycotts, corporate sponsors such as McDonald’s and Pepsi withdrew their support.  Henceforth, the organization announced, it would concentrate on state economic policy.

State legislators who might look to the organization for leadership on economic policies should be wary of following ALEC’s lead in this arena.  A startlingly candid report, “Selling Snake Oil to the States,” just released by the Iowa Policy Project and the Washington-based Good Jobs First, shows that ALEC’s recommendations for producing economic growth in the states are essentially worthless.

continue reading Guest Blog (Michael Lipsky): ALEC’s and Arthur Laffer’s worthless recommendations for prosperity in the states

Arthur Laffer and Gov. Sam Brownback. Photo by Mike Shields, Kansas Health Institute

Earlier this year, while Oklahoma lawmakers were adjourning their legislative session without a final agreement on Governor Fallin’s top priority of cutting the income tax, Kansas Governor Sam Brownback was celebrating his state’s adoption of major income tax changes. Governor Brownback has since referred to the tax plan adopted by the Kansas legislature as a “real live experiment.” While some will be pushing hard to replicate the experiment in Oklahoma, the Kansas example should instead give us pause.

The tax plan approved in Kansas, HB 2117, had four main components:

• Lowering income tax rates, with the top rate dropping from 6.45 to 4.9 percent and the bottom rate dropping from 3.5 percent to 3 percent, and reducing the number of tax brackets from three to two;
• Eliminating tax credits that benefited low- and middle-income households, including the Food Sales Tax Relief credit, Child and Dependent Care Credit, Homestead Property Relief Credit for renters, adoption credit, and others;
• Raising the standard deduction for married couples and heads of household;
• Exempting all “pass-through” business income from tax.

Other than the exemption for pass-through income, the legislation bears a close resemblance to the major proposals that were introduced this year in Oklahoma, which similarly would have lowered the top income rate and offset part of the lost revenue by eliminating key exemptions and credits that reduce taxes for low- and moderate-income Oklahomans. The similarities are not surprising in that tax cut proposals in both Kansas and Oklahoma were largely based on recommendations by economic consultant Arthur Laffer.

continue reading The matter with Kansas

Arthur Laffer

Would an income tax cut foster so much economic growth that tax revenues would actually go up? In other words, can tax cuts pay for themselves?  A new poll of 40 of America’s foremost economic experts was unable to find a single one in agreement with the assertion.

The idea that tax cuts pay for themselves, closely associated with economist Arthur Laffer and ‘supply-side economics’,  is an article of faith that has been promoted by tax cut proponents for over four decades.  It was a central idea in the report prepared by Laffer and his associates for the Oklahoma Council of Public Affairs that formed the basis for tax cut proposals promoted legislators and by Governor Fallin. Laffer’s report selected recent tax collection data to assert that “Oklahoma has demonstrated the dynamic effect of tax cuts” because tax revenues rose following passage of tax cuts in the mid-2000s. The report also stated that the economic growth from eliminating Oklahoma’s income tax “would reduce the static revenue loss of the arithmetic effect, although not completely”.

The idea that tax cut pay for themselves has been widely debunked by economists, including by three leading economic advisers to recent Republican Presidents, Martin Feldstein, Glenn Hubbard and Gregory Mankiw. We explained the fundamental flaws in Laffer’s use of Oklahoma tax data and several Oklahoma economists, along with the Institute on Taxation and Economic Policy, identified methodological problems with their projection of the economic impact of their income tax proposal.

continue reading That's a Laffer! Top economists unanimously reject that tax cuts will yield higher revenue

Ken Miller is the Oklahoma State Treasurer.  This post originally appeared as an article in the May Oklahoma Economic Report and is reprinted with permission. 

Oklahoma is doing more than fine with unemployment three percentage points below the national average, the third best job creation rate, and fourth highest growth in per capita income. Even so, we could better encourage entrepreneurial activity, productivity and growth by reforming our entire tax code. Unfortunately, some are singularly focused on the personal income tax.

A May 15 Wall Street Journal editorial lamented the Oklahoma Legislature’s recent failure to eliminate the state income tax, asking: “Do Republicans stand for economic growth and tax reform or not?” Tax reform should not be confused with simply eliminating the state’s largest revenue source on a wing and a prayer. Tax cut promises are easy to make when necessary cuts in spending and tax incentives are ignored. Financing tax cuts with assumed future growth revenue works well at the margins, not as well with incremental changes around the median, and not at all if current rates lie outside the prohibitive range, as demonstrated by the Laffer curve.

continue reading Guest Blog (Ken Miller, PhD): Tax reform revisited

President Ronald Reagan, a big supporter of the Earned Income Tax Credit

In all of the major income tax proposals this year (including the plan announced yesterday by Senate Republicans), the Earned Income Tax Credit (EITC) has been targeted for elimination. That’s strange, because lawmakers have made no clear argument for why we should lose this credit. They’ve spoken about the need to end handouts to “corporate special-interests,”  but the EITC goes to low-income working families.

It’s also strange because the EITC has a long history of support from conservative leaders. For example, at the State Chamber of Oklahoma’s tax policy forum earlier this month, Arthur Laffer said he would favor a “negative income tax” that pays credits to those earning below a certain amount.

The negative income tax idea has a long conservative pedigree, beginning with Milton Friedman. According to Friedman, the most efficient and effective way to solve poverty is to give poor people money. This preserves their ability to make market choices and reduces the need for bureaucracy to run more complicated assistance programs, such as food stamps and rent subsidies. To maintain the incentive to work, the payment is reduced by a fraction for each dollar the family earns. Rising wages would eventually eliminate the credit, but not so quickly that it makes more sense to stay unemployed.

continue reading The conservative anti-poverty program

The State Chamber of Oklahoma is hosting a tax policy forum, co-sponsored by OK Policy and the Oklahoma Council of Public Affairs. Speakers include:

• Arthur Laffer, PhD, the author of a report being relied on by those pushing to abolish the Oklahoma income tax
• Mickey Hepner, PhD, Dean of the College of Business Administration at UCO and a critic of tax cuts
• State Treasurer Ken Miller, PhD, who will be moderating

The event will be held Wednesday, May 9, noon-1:30pm at the Oklahoma History Center, 800 Nazih Zuhdi Dr, Oklahoma City.

Seating is limited. RSVP for lunch to Karen Cagle at kcagle@okstatechamber.com or call 405-235-3669.

At a previous forum sponsored by OK Policy, eight leading Oklahoma economists, economic developers, and budget experts exposed serious flaws in the Laffer report. You can see a ten-minute highlight reel or watch the full two-hour forum on YouTube.

[NOTE: This post has been corrected to fix an error in the units used when describing the price of oil.]

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.

continue reading Tax cuts of the mid-2000′s did not spark revenue growth

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.

continue reading Who's behind the assault on income tax?

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.

   continue reading Guest Blog (Steve Ellis): Evidence and Ideology: Beyond ECON 101