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.

continue reading Surprise! States without an income tax have higher sales and property taxes

Many state political and business leaders are clamoring to do away with Oklahoma’s personal income tax, the state’s single largest revenue source, while acknowledging the need to maintain sufficient tax revenue to fund basic services. One influential participant in the tax debate, House Revenue and Taxation Committee chairman David Dank, has made clear that he would support raising the state sales tax in order to eliminate the income tax.  Rep. Dank was quoted in February saying:

My personal preference would be to eliminate the state personal income tax entirely and replace it with consumption taxes on items other than groceries and prescription drugs, where everyone pays a fair share based on what they buy. The more money people have, the more they spend.

In Rep. Dank’s view, eliminating the income tax will draw  businesses and investors who will otherwise choose a state without an income tax, such as Texas. However, if the point of tax reform is to boost Oklahoma’s economy, our leaders should be wary of raising the state sales tax. Scrapping the income tax in favor of higher sales taxes would do many things, but none will be good for our economy.  Here are just a few ways that a higher sales tax will hurt our state:

continue reading Easier to shop in Kansas than move to Texas: Why replacing income tax with consumption tax is bad for Oklahoma's economy

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 at OK Policy we reviewed the state’s FY ’12 budget agreement on our blog.  We applaud leadership for protecting our most vulnerable populations by targeting available funds for Medicaid, human services, and mental health, but ask if state agencies facing a third consecutive year of budget cuts are being provided enough resources to continue to perform their core missions.

OK Policy has long called for a balanced approach to the state budget and we urged leaders to avoid further cuts to key public services by choosing among an array of fiscal tools for closing the budget shortfall.  Click here for our spreadsheet tracking state agency appropriations from FY’09 to FY ’12.  Click below to watch OK Policy Director David Blatt discuss the state budget on ONR (Oklahoma News Report) this week on OETA:

continue reading The Weekly Wonk – May 13, 2011

In two years of recession and slow recovery, Oklahoma’s public services have struggled to get by with less. Oklahoma families, businesses and communities are feeling the impact in far-ranging ways, including increased class sizes, higher tuition rates, fewer mental health treatment services, critically understaffed correctional facilities, and more. Even as revenues recover, they remain far below pre-downturn levels, and another large budget shortfall is looming for next year’s budget. Legislative leaders are now warning of cuts from 3 to 7 percent for all agencies, with some agencies facing cuts as high as 10 percent.

Governor Fallin has has made some efforts to minimize cuts to state agencies, especially the core public services of education, law enforcement, health, transportation and corrections. After some of her revenue proposals did not find traction in the legislature, Fallin stated, “If they have a different way of being able to fund the budget and make up for the $500 million budget shortfall, I invite them to bring those ideas forth. There’s room for all kinds of ideas.”

continue reading New OK Policy report lays out options for protecting Oklahoma public services

The state budget crisis has put nearly all public services under intense scrutiny. With most state agencies taking cuts of 15 percent or higher, and more cuts expected, public officials have been forced to streamline operations, eliminating both waste and many useful programs.

With states hurting everywhere, they are also beginning to look at holes in the tax code that lack any good rationale. One glaring example is sales tax collections for online purchasers. Many states, including Oklahoma, require residents to pay taxes for online purchases, but they put the burden on individual taxpayers to identify how much tax is owed when filing their tax return.

Collecting in this way is highly inefficient, and it subsidizes large online retailers like Amazon at the expense of Main Street businesses who directly employ Oklahomans. Since they aren’t required to include sales tax in their prices, online retailers are able to undercut local business and move more money out of the state. Untaxed remote sales also starve state and local governments of resources – an estimated $92.7 million for Oklahoma in 2009, rising to $156.3 million in 2012.

continue reading More states push to end the Amazon tax loophole. Will Oklahoma join them?

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

While tax day is still over a month away, the state tax structure got some serious attention this week from OK Policy.  Gene Perry made the case for sales tax reform in an Okahoman op-ed this weekend, citing a new issue brief that the sales tax doesn’t raise enough revenue to fund core public services and fails to evenly distribute the costs of governing.  The state income tax is set to be slashed again in January 2012; our new fact sheet, Cutting Oklahoma’s top income tax rate: Who benefits?, reports that the bulk of the cut goes to the top 1 percent, while forty-three percent of Oklahomans receive no tax cut at all.  Unless the legislature acts, the cut will reduce available revenues for FY’12 by $38 million, and when fully phased-in, by $120 million.  OK Policy’s perspective was also included in a Tulsa world editorial chastising state leadership for a top rate tax cut in a time of budget distress.

State spending as a share of the overall economy will reach a 30-year low in 2011, according to a fact sheet released on Wednesday.  While many in the state have cautioned that government shouldn’t be allowed to grow faster than the economy, the data reveals that the exact opposite is occurring, as 2011 marks the lowest percentage of state appropriated spending as a share of personal earnings in thirty years.  In fact, we may have reached a point where we are not making the investments in the core public services that support Oklahoma families, businesses, and communities.  An editorial in the Oklahoman on Thursday contends, “Not everyone will find this as alarming as does Blatt, but his point is well taken.”

continue reading The Weekly Wonk – March 4, 2011

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

Our series on marriage promotion continued Monday with two perspectives from new staff, Kate Richey and Gene Perry.  The OK Policy Roundtable, Should Oklahoma be promoting marriage? continues the conversation started this month by Scott Stanley, guest blogger and research professor at the University of Denver, who reported on the success of Oklahoma’s Family Expectations program.  Are there any topics you would like to see covered in an OK Policy Roundtable?

continue reading The Weekly Wonk – February 21-25, 2011

Oklahoma’s tax system is broken. Despite a recovering economy, the state is unable to raise enough revenue to sustain core public services. The strains will only increase over time as we cope with a rapidly aging population, unfunded pension obligations, and decaying infrastructure.

But inadequate revenues is not the only problem. It’s just as important that the cost of supporting government is fairly distributed and does not privilege some businesses or individuals over others without good justification.

As we explain in an issue brief released today, Oklahoma’s sales tax has fallen victim to both of these problems. The economy has evolved so that services and online goods which are not covered by the sales tax make up a larger proportion of purchases. In addition, the legislature has granted a growing number of exemptions, many with questionable economic rationale. One report found that just 35.7 percent of all purchases in Oklahoma were covered by the sales tax in 2003, compared to 52.0 percent in1990. Trends in the economy make it likely that the situation has only gotten worse since then.

continue reading Unfair, inefficient, and bad for business: Why Oklahoma needs sales tax reform

With state revenue collections seeing their steepest plunge in a generation, Oklahoma is enduring a tough year of state budget cuts that are already having a harmful effect on families, communities and the economy. However, while the severity of this year’s cuts has been mitigated, the outlook for next year’s budget is substantially worse. In the absence of new revenue, we should expect additional budget cuts of 10 to 12 percent across the full range of state agencies beyond those cuts already enacted this year. While we know far too little about how deeper cuts will be absorbed by state agencies and school districts, we are certain that if  the budget were to be balanced exclusively by cuts, the impact will be devastating to our schools, safety net programs, infrastructure, and public safety.

In this context, there is an urgent need for a balanced approach to the state’s budget shortfall that includes identifying possible sources of additional one-time or ongoing revenue. Governor Henry, in his FY ’11 Executive Budget,  proposed over $700 million in revenue enhancing measures, along with additional cuts across all of state government, savings from efficiencies and consolidation, and the use of remaining stimulus and reserve fund balances. Not all of the Governor’s ideas are likely to gain traction, but they provide a good starting point for an urgently-needed  discussion. In this and subsequent blog posts, OK Policy will explore some of the most promising policy ideas for generating additional revenue that would go at least part of the way to closing the budget deficit.

One straightforward revenue-generating idea involves limiting the discount that the state pays retailers for collecting the state sales tax. Currently Oklahoma is among 26 states that provides vendors some form of compensation, or discount, for collecting and remitting sales tax. As the policy organization Good Jobs First has noted:

continue reading Bridging the gap (1): Revisiting the vendor sales tax discount