Do we need another tax cut?

Last week, General Electric announced they would build an energy research center in Oklahoma. The company said it would employ at least 125 people in well-paid, high tech engineering jobs. GE executives said they chose Oklahoma because of proximity to GE’s oil and gas customers, the state’s academic institutions, and the area’s skilled workforce. They did not mention taxes, and indeed, chose Oklahoma City over Houston, the nearby oil and gas hub without a state income tax.

The GE example illustrates what the majority of research into economic development shows: that proximity to customers, qualified workers, and quality public services are far more important to business than state and local tax rates. In Oklahoma, we owe our recent economic successes to rising gas prices and new technologies for natural gas extraction. Growth in mining and pipeline transportation jobs accounted for 58 percent of Oklahoma’s relative job gains from 2004 to 2011. Tax cuts did not create the oil and gas in our rocks, nor did they create the experienced energy workers, drilling infrastructure, and historic connections to the energy industry that allowed us to take advantage of this boom.

At the same time, many hard-working Oklahoma families are being left out of our state’s prosperity. The most recent numbers show 7.2 percent of Oklahoma workers earned minimum wage or less in 2012, the third highest rate in the nation. Our poverty rate of 17.2 percent is the 11th worst in the US, and it has increased every year since 2008. These are the workers and families who have struggled most in recent years, and most of them are among the 43 percent of Oklahoma families who would get no tax cut under the plan proposed by Governor Fallin and the House.

Oklahoma’s public sector has also suffered in recent years, and core services that benefit all Oklahomans have seen major cutbacks. For example:

• Oklahoma’s schools are functioning with more than $200 million less than they were 4 years ago, even as they are tasked with educating more than 32,000 additional students and implementing unfunded reforms.
• The number of state troopers on Oklahoma highways is at its lowest level in 22 years. Prisons are severely understaffed, leaving officers outnumbered 160 to 1 on some shifts.
• State support for higher education per pupil is down 26.2 percent compared to five years ago. To cover costs, colleges and universities have increased tuition and fees by at least 5 percent each year for the past three years.
• The waiting list for at-home care for Oklahomans with developmental disabilities has grown to more than 7,000 people, with some waiting more than a decade.
• Oklahoma’s state workers have not received a cost-of-living increase since 2006, leaving our core services at a serious disadvantage when competing with the private sector for qualified workers.

Any fair assessment of the facts makes clear that another tax cut is the wrong priority for Oklahoma this year. It won’t address the needs of those who are struggling. It will further deprive public schools, higher education, and other core services that help middle-class families. It won’t significantly improve our business climate. It will make us more vulnerable to an energy bust or economic downturn. And it would come at a time when state revenue collections are already faltering.

Despite this reality, the income tax cut bill HB 2032 continues to move through the Legislature. A plan supported by the House and Governor Fallin would reduce the top rate from 5.25% to 5.00% next year. Middle-income families in Oklahoma would receive an average tax cut of $39, and 43 percent of Oklahomans would receive no tax cut at all. At the same time, it would cost $125 million in reduced revenue for public services by 2014. 

The latest Senate plan would reduce the top rate to 4.95% beginning in 2015. Under this plan, the Institute on Taxation and Economic Policy calculates that middle-income families would get an average cut of $47, and 41 percent of Oklahomans would receive no tax cut at all. The Senate plan would not take effect immediately, but it would cost $169.2 million when fully implemented in 2016.

Last year’s attempt to abolish the income tax collapsed amid infighting between the House, Senate, and Governor. This year, state leaders have significantly scaled back their ambitions, but lawmakers are still divided. With the weight of evidence pointing against any need for another tax cut, strong public pressure still has a chance of influencing the outcome.