New remittance law shows why transparency might be a good idea

In the last days of this year’s legislative session, House Bill 2250 passed with little fanfare. HB 2250 puts a  tax on wire transfers–$5 plus one percent on the amount over $500, with proceeds going to the Bureau of Narcotics and Dangerous Drugs. It’s  a good example of how bad law–in this case, an unfair and regressive tax that hurts Oklahoma businesses, threatens to create an illegal money transmission market, and risks legal challenges–happens when people aren’t watching. Don’t be surprised if you have not heard of this bill. The tax was never publicly discussed before appearing in a conference committee report just days before the Legislature adjourned. All indications are that few legislators were aware that the final version of the bill added a new tax. That suggests something is fundamentally wrong with our legislative system. What did we get from this exercise in closed-door government? Three potential problems, at a minimum:

  • The new law hurts low-income people. Person-to-person wire transfers are most often used by those who don’t have bank accounts, are transient, or are here from other countries. While the last group was the intended target, many others will be hurt. The law’s provision for an income tax credit for the wire transfer tax does not eliminate its sting. People with incomes below a certain threshold are not currently required to file federal and state income tax returns and so will be unlikely to claim the remittance credit. Even Oklahomans of all income levels who do file state tax returns–including parents sending money to college students– will face a substantial administrative burden to qualify for the credit. Many will fail to claim the credit for all their transfers and will end up paying a tax not intended for them.
  • The law punishes legitimate businesses and encourages illegitimate ones. Wire transfer agents provide an important service and they are regulated by both the federal and state governments. This law cannot help but to reduce their revenue in an already difficult economy. Worse, some federal agencies have previously expressed concern that laws like this will drive transfers out of legitimate businesses and into the underground money transfer market, which is widely recognized as supporting money laundering practices. Appleseed, a network of public interest justice centers,  has called upon the U.S. Department of the Treasury to issue a statement about the risks of this illicit market and has asked the administration to issue a statement similar to the one President Bush issued on cutting costs of remittances.
  • The new remittance charge may  open the state up to needless, costly legal challenges, which Mike Jones describes in the Tulsa World:

There is a question, however, whether it is a tax and a revenue bill or simply a fee. If it is a tax it could be in violation of the state Constitution because it passed in the final five days of the legislative session and takes effect Nov. 1, less than 90 days from passage, which is prohibited by the Constitution. Similar laws have been challenged in other states, including Georgia and Texas. To be classified as a fee it has to go to the entity regulating the service for which the fee is charged. Under this bill, the beneficiary of the fee seems to be the Oklahoma Bureau of Narcotics and Dangerous Drugs, which has no authority over illegal immigration, other than drug issues. It also could be challenged as a restraint of interstate commerce. Congress has the power to regulate commerce among the states and states cannot place undue burden on that commerce.

At Oklahoma Policy Institute, we believe Oklahoma should be a model for open government, policies that do not punish people based on their income, and programs that encourage and protect individuals who want to improve their financial security. This law does not move us in that direction, but away from it. We hope all Oklahomans–those affected directly by this law and those who share our goals for the state–will learn more and ask if this is where our state should be headed.

ABOUT THE AUTHOR

Paul Shinn

Paul Shinn is a Budget and Tax Senior Policy Analyst with OK Policy. Shinn has held budget and finance positions for the Oklahoma House of Representatives, the Department of Human Services, the cities of Oklahoma City and Del City and several local governments in his native Oregon. He's also taught political science and public administration at the University of Oklahoma, University of Central Oklahoma, and California State University Stanislaus. While with the Government Finance Officers Association, Paul worked on consulting and research projects for the U.S. Environmental Protection Agency, the U.S. Department of Transportation, and several state agencies and local governments. He also served as policy analyst for CAP Tulsa. He holds a Ph.D. in Political Science from University of Oklahoma and degrees from the University of Oregon and the University of Maryland College Park. He lives in Oklahoma City with his wife Carmelita.