A study released today finds that inverting state tax structures—whereby the highest income earners would be taxed at the current percentage of income for the lowest income earners, and vice versa—would raise more than $4 billion in new revenue for Oklahoma (a 35 percent increase). The additional revenue would immediately eliminate state budget shortfalls and avoid the serious consequences of budget cuts.
The report, titled “Flip It to Fix It: An Immediate, Fair Solution to State Budget Shortfalls,” attributes a large part of states’ current deficits to regressive tax structures that are designed to fail.
“Trying to raise adequate revenue through a regressive tax structure—where a greater percent of income is demanded of the poor than the well-off—is like trying to squeeze water from a stone,” said Karen Kraut, coordinator of state tax policy at United for a Fair Economy and co-author of the report.
In 2007, the poorest 20 percent of Oklahoma households paid 9.9 percent of their income in sales, property, and income taxes, which is nearly twice as much as the 5.9 percent of income paid by the wealthiest 1 percent. The cut to the top income tax rate set to go into effect next year will worsen the disparity, as the wealthiest 20 percent of Oklahomans will take home nearly three-fourths of the tax cut while the bottom 60 percent of Oklahomans together receive only 9 percent of the benefit.
In the debate over tax cuts in Oklahoma, some defenders of policies that primarily benefit the wealthiest argued that the rich will necessarily benefit much more from tax cuts because they pay more in taxes. In fact, tax cuts do not have to be regressive, and this report reaffirms the evidence that Oklahoma already puts an unfair burden for supporting state services on low- and middle-income Oklahomans. If we instead enacted a more progressive tax structure, we could restore badly needed funding to our schools and other public programs while reducing or keeping taxes the same for the bottom 60 percent.
We could make Oklahoma taxes fairer in numerous ways, such as: raising the personal exemption, which has been left unchanged since the early 1980′s; stretching out and indexing tax brackets so that more income is taxed at a lower rate; expanding the grocery sales tax credit; and providing a renter’s property tax credit for low- and moderate-income renters. Public services can ill afford to be deprived of more revenue, but the funds lost from these measures could be easily replaced by taxing higher income Oklahomans at the same rates as we currently tax the bottom 20 percent.
The full report and state-by-state information is available at http://www.faireconomy.org/flipitreport.