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Today you should know that tax cuts and rising internet sales over the past 12 years have reduced state tax receipts by nearly $2 billion annually, according to a new report by two state economists. Plunging oil and gas taxes have broken Oklahoma’s two year streak of month to month revenue growth.
Proposals to eliminate the income tax are being scaled back to a quarter to one percent cut. A Senate committee tied tax cuts in one bill to a 5 percent revenue growth trigger. Tomorrow, OK Policy is sponsoring a panel discussion by several Oklahoma economists and economic developers on what the implications of doing away with the income tax could be on state public finances, economic development, and the overall economy of the state.
A new OK Policy issue brief explains how the loss of broad-based tax credits threatens shift the cost of a tax cut onto hundreds of thousands of low- and moderate-income taxpayers. A bill to keep OETA in operation was narrowly approved by a Senate committee only after one member was called out of the room by Senate Pro Tem Brian Bingman and persuaded to switch his vote. The OK Policy Blog previously featured a post on why OETA is vital to the public education mission of Oklahoma.
A Senate panel approved the justice reinvestment bill after stripping out one of the sentencing reforms. OK Policy previously explained what this bill would do and what obstacles still stand in the way of fixing our runaway incarceration levels.
A group filed a ballot proposal to allow counties to vote on having wine sales in grocery stores. Delaware County voters approved a 17-year, half-cent sales tax to pay off a settlement over sexual abuse of county inmates. Democrat Dan Arthrell is ahead by three votes in the special election for House District 71, formerly held by Republican Dan Sullivan. Six provisional ballots remain to be opened.
The Number of the Day is the amount the state owes to oil and gas companies for horizontal and deep well drilling tax credits accrued in 2010 and 2011. In today’s Policy Note, the Center on Budget and Policy Priorities explains why the Texas economic model is hard for other states to follow and not all it’s cracked up to be.
In The News
Oklahoma tax receipts have plunged, economist says
Legislative changes to the tax code and changes in consumer buying patterns over the past 12 years have reduced state tax receipts more than $1.5 billion annually, according to a report issued Tuesday by two state economists. Economists Robert Dauffenbach of the University of Oklahoma and Larkin Warner of Oklahoma State University produced the study that shows reductions in the state income tax, motor vehicles tax and rise of Internet sales in recent years have cut Oklahoma tax collections by up to $1.9 billion a year. Dauffenbach and Warner tracked the state’s monthly revenue reports, adjusted for seasonal variation, and compared the revenue to Oklahoma personal income numbers for the past 20 years. A graph of those two figures rises and falls in tandem until 2001. But in the past four years, that relationship has diverged to the point it would require nearly $2 billion in state revenue to bridge the current gap, Dauffenbach said. “We’ve already had a tremendous reduction in state taxes,” Dauffenbach said. “In fact, if you do the computation, it comes out to about 19 or 20 percent over what we would have had.”
State revenue streak ends, all eyes on energy industry
Oklahoma has enjoyed two years of revenue growth. The streak has been broken, the State Treasurer said today. The biggest drop: taxes from oil and gas. Total collections for March 2012 were only down about 0.3 percent from the same month last year, but the gross production tax fell by more than one-third, Miller said in his monthly report. This is the fourth consecutive month of declining tax revenues from oil and natural gas, Miller said. There is a delay between market activity and tax receipts. March’s numbers reflect market activity from January, and Miller expects “a period of shrinking natural gas tax collections.” The price of natural gas is hovering around a 10-year low. State officials have to estimate revenue to create budgets and plan expenses.
Tax proposals remain on life support in Legislature
Proposals by Gov. Mary Fallin and other GOP leaders to dramatically slash and ultimately eliminate the state’s income tax remained on life support Tuesday in the Oklahoma Legislature as opposition mounted against the cuts needed to pay for them. Fallin has suggested slicing the top personal income tax rate from its current level of 5.25 percent to 3.5 percent next year, and a separate proposal endorsed by nearly one-third of House members would cut the rate next year to 2.25 percent. The Senate Finance Committee approved both of those bills on Wednesday, but the governor’s proposal passed by only one vote. Even top Republicans acknowledge the proposed cuts — including the elimination of various tax exemptions and credits — are too deep to get passed this year. All of the bills are headed to a joint House and Senate conference committee, where a final agreement will be hammered out, with input from the governor’s office. Rep. David Dank, R-Oklahoma City, said a more likely projection is for a one-quarter of 1 percent cut in each of the next two years, and then a third one-quarter of 1 percent cut in 2015 if state revenue collections continue to grow.
House income tax bill modified by Senate to include trigger
A House-authored income tax-cut measure was changed in the Senate Finance Committee Tuesday to tie reductions to a revenue-growth trigger targeting only sales and use taxes, motor vehicle taxes and corporate income taxes. Sen. Clark Jolley, R-Edmond, said that under the substitute version of HB 3038, when revenue in those tax categories rises by 5 percent, the top personal income tax rate would be reduced by one-quarter percentage point. He said that previous trigger provisions have relied upon growth in overall general revenue. A fiscal impact report for the bill estimates it would have a $232.39 million affect on revenue in FY 2013 and $612.35 million in FY 2014. Sen. Mike Mazzei, R-Tulsa, noted that the engrossed version of the bill was projected to have a negative revenue impact more than $900 million. He questioned whether adding a trigger might create even greater disparity during some years.
The “tax cut” bait and switch
As they ponder plans to cut Oklahoma’s top income tax rate, most lawmakers admit the state cannot afford a cut without eliminating many other tax breaks. They emphasize that we should close loopholes for corporate “special-interests.” Yet as details of their plans emerge, we’ve discovered that the biggest cost would fall not on special-interests, but on hundreds of thousands of low- and moderate-income taxpayers, especially families with children and seniors. These families would lose a host of broad and effective state tax credits to make way for income tax cuts that primarily benefit wealthier households. A new issue brief from Oklahoma Policy Institute explains how these broad-based credits work and why Oklahoma should preserve them. The at-risk credits include the Earned Income Tax Credit (EITC), Sales Tax Relief Credit, and Child Tax Credit/Child Care Tax Credit. The state EITC and the Child Tax Credit help about one out of every four Oklahoma families, and the Sales Tax Relief Credit goes to one-third of all Oklahomans.
See also: The full issue brief from Oklahoma Policy Institute
Bill to keep OETA in operation narrowly survives Senate panel vote
A bill to keep the Oklahoma Educational Television Authority alive narrowly squeaked out of a Senate panel on Tuesday. The measure, House Bill 2236, which would re-create the OETA, originally failed on a 4-4 vote last week in the Senate General Government Committee. The bill would reauthorize OETA to continue as a state agency until its next “sunset” review in 2016. If the measure failed, the OETA would cease to exist after July 1. After the measure failed last week, Senate Pro Tem Brian Bingman, R-Sapulpa, asked Cliff Aldridge, R-Midwest City, the chairman of the Senate General Government Committee, to hold a second vote. Bingman also authorized a suspension of Senate rules so a second vote could be taken. The second vote, taken at another meeting Tuesday, was 4-4, which again meant that the bill would die. But then, the vote was held open. Jim Williamson, a senior policy adviser and legal counsel to Bingman, called Sen. Bill Brown out of the room. When Brown returned, he asked to change his vote to approve the measure to re-creating OETA, thus making the vote 5-3. Brown explained: “I did not realize this sunset bill means OETA could not even go out and raise private money. This is not an appropriations bill. It just keeps them operating.” Brown said he would vote against a state appropriation for OETA.
Previously: OETA is vital to the public education mission of Oklahoma from the OK Policy Blog
Senate panel advances criminal justice measure
A highly touted criminal justice reform measure is headed to the Senate floor. House Bill 3052 by House Speaker Kris Steele, R-Shawnee, secured passage Tuesday out of the Senate Judiciary Committee by a vote of 7-0 with no debate. The measure would require felons exiting prison to undergo mandatory supervision. It would also create a grant program within the Attorney General’s Office for local law enforcement agencies. It also would create intermediary revocation facilities for those who violate drug court regulations and conditions of probation and parole. However, a section that would have allowed inmates who must serve 85 percent of their sentence to start earning good-time credits when they enter prison was removed. Inmates now serving the 85 percent sentences are not eligible to earn good-time credits until 85 percent has been served. The credits are used to decrease incarceration time for offenders and as a behavior management tool.
Previously: Reforming criminal justice: What the latest bill does and what stands in the way from the OK Policy Blog
Group files grocery store wine sales ballot proposal
As organization officials have said for months they would do, Oklahomans for Modern Laws has filed a proposed ballot issue that would establish a county option process for the sale of wine in grocery stores, warehouse clubs and supercenters—but not convenience stores. It would affect only counties with populations greater than 50,000. According to information from the organization, that would include the state’s 15 most-populous counties. Each county would be required to have a separate election to allow wine to be sold in stores. Sales would only be allowed on the same days and at the same times as retail liquor stores. Wine sales would also be subject to the same tax structure as in package stores. Under the measure, wind could only be sold unrefrigerated for off-premises consumption, and could not be sold to people less 21 years of age. The measure would take effect 18 months after approval on a statewide ballot. The group wants it on the November general election ballot.
Delaware County voters OK sales tax for settlement
Delaware County voters overwhelming approved a 17-year, half-cent sales tax Tuesday night to pay off a multimillion-dollar civil rights judgment the county incurred as the result of former female inmates who claimed they were raped and sexually assaulted by members of the sheriff’s staff. According to unofficial returns, with all 22 precincts counted, the measure passed by 93.37 percent. Election Board Secretary Dixie Smith said it appeared turnout was high. Of approximately 22,000 registered voters, more than 6,600 voted, she said. The $13.5 million settlement is three times the county’s annual budget of $4.5 million and has the potential to affect the county for decades. State law mandated the cost of the judgment be paid with property taxes for a period of three years unless there was another option, such as a sales-tax increase.
Democrat Dan Arthrell ahead in House special election by 3 votes
Democrats snagged an apparent victory in what has been Republican territory on Tuesday, winning – at least for now – a state House seat historically held by Republicans. Unofficial returns show Democrat Dan Arthrell winning the House District 71 special election in Tulsa’s Brookside area by three votes over Republican Katie Henke. The tally announced Tuesday night does not include six provisional ballots that won’t be opened until 12:30 p.m. Friday, and the election is likely to go to a recount. A request for a recount would have to be filed with the state Election Board in Oklahoma City by 5 p.m. Friday, said Tulsa County Election Board Secretary Patty Bryant. A judge would then set the time and day for the recount. Henke, though, said the fight isn’t over, even if she doesn’t prevail in the election. “I told my supporters to pick up their yard signs and put them in their garages, because I plan on being back in November,” she said. Tuesday’s election was to complete the term of Rep. Dan Sullivan, which ends in November. Candidates begin filing next Wednesday – conceivably before the special election is decided – for the regular summer primaries and November general election.
Quote of the Day
Our state tax system is like it’s on a ratchet — you can move it one way, but you can’t move it the other.
–OSU economics professor Larkin Warner, who released a study showing that reductions in the state income tax, motor vehicles tax and rise of Internet sales in recent years have already cut Oklahoma tax collections by almost $2 billion a year
Number of the Day
Amount the state owes to oil and gas companies for horizontal and deep well drilling tax credits accrued in 2010 and 2011.
Source: Oklahoma Policy Institute
The Texas Economic Model: Hard for Other States to Follow and Not All It Seems
Whatever its boosters may say, Texas is not a helpful model for economic growth for the rest of the country. True, the number of people and jobs in Texas has been expanding, causing other states to wonder whether Texas holds important lessons for state policies that can generate similar growth elsewhere. The answer is no. Texas has unique geographic and demographic characteristics that have helped lift its economy in recent years. Its border location encourages trade and immigration and helps fuel population and job growth. A combination of available land and lending regulations have kept housing prices comparatively low and helped Texas avoid the real estate depression that dragged down many other state economies. Though Texas’ economy has diversified in recent decades, the state’s abundant oil and gas resources remain a valuable asset – especially when prices for those commodities are high – that most other states lack. Even if it were possible for other states to replicate these features, the fact that so many Texans have failed to benefit from them – with poverty, low-wage jobs and lack of health insurance all above the national average – makes Texas a less-than-desirable model to follow.
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