A shorter version of this article was submitted to the Oklahoman as a letter to the editor. The version below was originally submitted as an op-ed, which The Oklahoman declined to publish. 

A recent Oklahoman editorial takes issue with a report by Oklahoma Policy Institute on why Oklahoma’s tax breaks for horizontal drilling have become unnecessary and unaffordable. The Oklahoman editorial wrongly paints OK Policy with positions it has never taken, and it does not present a single argument to refute OK Policy’s criticism of these credits.

First, the Oklahoman argues that the near total collapse of General Fund contributions from gross production taxes is not significant, because the first $150 million of gross production tax revenue is dedicated to other funds.  The data disputes the Oklahoman’s view: since 2001 the gross production tax has contributed an average of $194 million to the General Fund through November, and prior to this year it had never brought in less than $94 million. But this fiscal year, gross production taxes have collected only $7 million for the General Fund.

continue reading A response to The Oklahoman

Oklahoma should eliminate tax breaks for the oil and gas industry that are no longer needed and are threatening the state’s fiscal stability by squeezing out resources for schools, roads, public safety, and other keys to long-term economic growth, according to a new issue brief from Oklahoma Policy Institute. Policymakers created the tax exemptions to encourage what were at the time novel, expensive, and risky methods of drilling, but these techniques now are standard practice, making the exemptions unnecessary and counterproductive.

Revenue from oil and gas production is a vital component of the state’s tax system. It provides the funding to educate our children, protect our communities, maintain our transportation grid, and assist those in need. Oklahoma assesses a 7 percent gross production tax on oil and gas extraction, except when prices fall below a certain floor. However, horizontal drilling and deep-well drilling benefit from tax breaks that lower the tax rate to just 1 percent for horizontally-drilled wells and 4 percent for deep wells. The tax breaks can be claimed regardless of the market price of oil and gas and for 48 months after initial production or date of first sale.

continue reading Unnecessary and Unaffordable: The case for curbing Oklahoma’s oil and gas tax breaks

Four months ago, a legislative task force chaired by Rep. David Dank and Sen. Mike Mazzei laid out an ambitious agenda for reforming Oklahoma’s tax expenditures. The group’s recommendations included ending tax credit transferability, enacting caps, sunsets, and regular audits for all tax incentives, and placing a one year moratorium on credits while the legislature decides which ones should be eliminated.

Describing the task force’s findings, Rep. Dank said, “The simple truth is that a few of these tax credits are like the huckster who took a bucket of manure, covered the top with an inch of honey and sold the whole thing as a full bucket of honey. It wasn’t until the sucker got home with it that he found out what he had actually bought.”

The reception was rocky. The State, Oklahoma City, and Tulsa Chambers of Commerce immediately came out against several task force recommendations. The Tulsa City Council strongly defended the historic rehabilitation tax credit, and filmmakers lobbied to protect the film incentives program. Rep. Dank introduced four bills meant to implement the task force recommendations, but today three of the bills are dead and the fourth has been watered down.

continue reading The tax expenditure reform dog: Still not barking

In the final days of the 2010 session, when legislative leaders were faced with historic revenue shortfalls and were desperate for ways to balance the budget, a deal was struck with representatives of the energy industry on oil and gas drilling incentives. The industry agreed to defer payment of credits on horizontal and deep well drilling for twenty-four months, until July 2012, and then to pay out over the next three years the credits that accrued during this period. In return, the legislature adopted several changes to how drilling is taxed that were sought by the industry .

At the time, it was anticipated that deferring the payment of credits on horizontal and deep well drilling for two years would put the state on the hook for $150 million. Instead, when oil and gas companies submitted their claims in late 2011, the price tag turned out to be nearly double: $297 million. The state now must pay out close to $100 million annually between 2013 – 2015 for credits accrued in 2010 and 2011, leaving less money than expected for state appropriations. These back payments are in addition to credits that are accruing for current production

The announcement that tax breaks for horizontal and deep well drilling amounted to nearly $150 million per year in 2010 and 2011  should serve as a wake up  call to Oklahoma policymakers and the public. All evidence points to horizontal drilling accounting for a substantially greater share of Oklahoma oil and gas production in the years ahead.  The generous tax treatment we provide this form of drilling threatens to compound our budget woes and hamper our efforts to provide adequate funding of core public services.

continue reading Stand back, we don’t know how big these things may get

States are spending billions of dollars per year on corporate tax credits, cash grants and other economic development subsidies that often require little if any job creation and lack wage and benefit standards covering workers at subsidized companies.

These are the key findings of “Money for Something: Job Creation and Job Quality Standards in State Economic Development Subsidy Programs”, a 51-state “report card” study published today by Good Jobs First, a non-profit, non-partisan research center based in Washington, DC.

“With unemployment still so high, taxpayers have a right to expect that economic development investments create significant numbers of quality jobs,” said Good Jobs First Executive Director Greg LeRoy. “The days of ‘no strings attached’ are largely gone, but the fine print in many states is still full of gaps and loopholes.”

continue reading Oklahoma ranked 6th in the nation for tax break safeguards, but serious gaps remain

This post originally appeared on Oklahoma Watch as part of their Oklahoma Voices series. The legislative task force that has been studying tax breaks will vote on final recommendations at its November 30 meeting. Also appearing today on our blog is a statement by tax force co-chair Rep. David Dank.

The Oklahoma tax code contains hundreds of credits, deductions, and other special breaks that cost the state billions of dollars each year. In the last few months, a legislative task force has uncovered numerous tax credits and deductions that lack public transparency, adequate monitoring, or any clear proof that Oklahoma was getting its money’s worth.

For political reasons, it is sometimes easier for lawmakers to change the tax code rather than fund a state program to do the job directly. Yet monkeying with the tax code is often a less efficient way to achieve a goal. For example, in 2007 Sen. Mike Mazzei proposed a tax credit that would reimburse 20 percent of the cost of health club memberships. The measure, which did not pass, was intended to combat obesity. Yet there was no way to ensure that the credit was not wasted on those who would have joined a health club without it. If we instead invested those funds in public health programs to promote physical fitness, we could ensure that the money is spent on those who need it.

continue reading Keeping tabs on tax breaks

Note: The Task Force for the Study of State Tax Credits and Economic Incentives, created by HB 1285, is meeting over the interim to scrutinize tax credits. This blog post excerpts an OK Policy issue brief from last year titled “Let There Be Light: Making Oklahoma’s Tax Expenditures More transparent and Accountable”. You can read the full brief or a 2-page summary of our recommendations.  Also see our blog post on the Task Force’s first meeting.

Tax expenditures are a widely utilized policy tool, with each legislative session seeing the introduction of dozens of bills calling for new or expanded tax breaks for individuals and businesses.  Proponents of most specific tax break proposals tend to make the argument in their favor on one or both of the two following grounds:

• Tax preferences are instruments for accomplishing worthwhile public purposes. If policymakers agree, for example, that encouraging individuals to save for a college education is a worthy goal, then allowing a tax deduction or deferral for some or all of one’s contributions to a 529 College Savings account may be the appropriate policy tool.  Tax policy can also be used as a way to target assistance and benefits to groups deemed worthy of support, because of such factors as age, income level, disability, military service, or occupation. Providing assistance through the tax code is often seen as a more effective, less expensive, and politically more palatable mechanism for providing support than operating a government spending program.

  continue reading Tax Breaks: Setting out the case for and against

A recent news report examining proposals to limit the federal tax deduction for charitable giving concluded with a comment that gets to the crux of the debate over tax breaks:

As one donor explained, he doesn’t give to charity to get a deduction — but he’ll take it if it’s there.

It seems as though Oklahoma oil and gas producers think the same way.

State tax breaks ranked last among 10 variables cited by Oklahoma oil industry executives as affecting their decision to drill, according to the findings of  a non-scientific 2008 survey by Oklahoma City University economics professor Steven Agee. However, most producers will gladly take them when they’re there: Agee found that 83 percent of respondents had claimed a gross production tax rebate.

continue reading I don't need it but I'll take it – Revisiting oil and gas tax breaks

In their efforts to find additional revenues for the upcoming budget year, legislative leaders and Governor Henry took some strong and politically risky steps to suspend tax credits for various forms of economic activity. But when it came to tax incentives for the oil and gas industry, expected to amount to some $150 million in FY ’11, it was the industry that seemed to have the upper hand. HB 2432, which passed in the final days of session, allowed the state temporarily to defer incentive payments to oil and gas producers – but only in return for some permanent and questionable concessions to the industry.

continue reading Over a barrel: HB 2432 makes a flawed system of oil and gas tax subsidies even worse