The AP reported Thursday that Oklahoma’s budget shortfall could potentially take another $65 million hit as a result of tax provisions that were included as part of the federal stimulus bill passed by Congress in February. The stimulus bill, or ARRA (American Recovery and Reinvestment Act), included several provisions that reduce businesses’ taxable income in 2009 and 2010. Since Oklahoma ties its income tax to federal definitions of taxable income, these federal tax cuts can wind up affecting state revenue collections as well. The most substantial provision – accounting for $46 million in lost revenue for the upcoming budget year – comes from the bonus depreciation allowance, which allows companies to write-off assets more rapidly than under normal law.
Fortunately, unlike for most of the state’s budget woes, this problem has a simple, tried-and-trued solution, which is to decouple Oklahoma law from federal law for the purpose of calculating allowable depreciation. Twice before, in 2003 and 2008, Congress has included bonus depreciation as part of stimulus measures during an economic downturn. Both times, Oklahoma, facing significant budget woes, has passed decoupling legislation without generating any hue-and-cry or causing any noticable hardships (here is a 2008 paper from the Center on Budget and Policy Priorities explaining how and why decoupling should happen). With the state facing a budget shortfall in excess of $600 million for the upcoming year, this one feels like a no-brainer.