OKPOLICY.ORG
Ken Miller, PhD, is the Oklahoma State Treasurer and an economics professor at Oklahoma Christian University. This post originally appeared as an article in the April 2016 Oklahoma Economic Report and is reprinted with permission.
This month’s Gross Receipts to the Treasury are the lowest April total in four years and mark a 12th consecutive month of falling collections. On an annualized basis, Gross Receipts to the Treasury are the lowest since June 2013 and all major revenue streams are smaller than one year ago.
The direct and indirect effects of contraction in our state’s anchor industry are, of course, driving these numbers. Monthly collections from oil and natural gas production taxes have been lower than the same month of the prior year for 16 consecutive months, including gross production collections of less than $21 million in April – the lowest monthly total in more than a decade.
Even so, some politicians are reticent to admit by word or deed the state has a revenue problem, instead defaulting to inaction and the tried and true spending problem rhetoric. For those who conveniently posture that our current crisis is rooted in spending, I have breaking news: It’s the revenue, stupid!
Yes, spending inefficiencies exist and should be addressed, but the ones still on the table are politically difficult, and the will to address them is currently lacking – sentencing reform a laudable exception. Yes, the income tax cut trigger was flawed, but a “roll back” isn’t possible without a willing supermajority. Regardless, addressing both isn’t enough to correct the short-term problem – a $1.3 billion dollar budget gap – or the long-term problem – a structurally deficient budget.
The long and short of it is Oklahoma needs more recurring revenue. This is a common sense conclusion evidenced by years of general appropriation bills that included hundreds of millions in nonrecurring revenue, in good times and bad, that falsely propped up budgets and exacerbated the current problem.
[pullquote]”For those who conveniently posture that our current crisis is rooted in spending, I have breaking news: It’s the revenue, stupid!”[/pullquote]
Governor Fallin has proposed several ways to correct this deficit. Some proposals address the current budget shortfall, like redirecting cash by bonding infrastructure. Other proposals address structural problems, such as increasing the cigarette tax, reining in sales tax exemptions, and modernizing the tax code. No doubt there are other solutions, including eliminating overly generous or unnecessary tax incentives.
Additionally, Congress needs to pass, and our delegation needs to support, the Marketplace Fairness Act to allow states to collect taxes on Internet sales from laws that are already on the books. Click-and-order should not have an advantage over brick-and-mortar.
To date, Fallin’s proposals have not been embraced by the Legislature, nor have cuts to the magnitude necessary to balance the budget. Unpopular and politically dangerous decisions lay ahead, a task not usually embraced by those whose career longevity is determined at the ballot box. Unfortunately, fiduciary duty now requires it.
With Oklahoma’s per capita income near the median but spending on three of the four core functions of state government in the bottom 10 on a cost-of-living adjusted basis – public safety higher only because of incarceration rates – budget writers cannot cut their way out of this problem without inflicting significant harm on Oklahoma’s future. Our people and businesses need a tax system that retains the profit incentive to propel the economy and incomes, yet also one that properly educates, protects and transports a healthy populace and workforce.
Of course, we Oklahomans have seen the cycle before and emerged each time better prepared for the next. Following the 1980s bust, lessons were learned and a Rainy Day Fund and expenditure limitations were implemented. After the Great Recession, the cap on the Rainy Day Fund was raised and pension reforms began.
In times such as these, statesmen who put the needs of their constituents above elections and aspirations will step up. Hopefully, they will form a governing majority. Lessons will again be learned, deficits will be corrected, and Oklahoma will emerge further down the path to greater prosperity.
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Or a better alternative would be 1) legalize marijuana as many other states have done ( colorado saw a massive increase in revenue, tax revenue, reduction in crime rates as well as reduction in incarceration costs ) and 2) release those in prison for marijuana, as well as 3) not waste money on suing states that got smart and realized a natural plant can equate monetary income. hey isnt that part of the ‘increase taxes on tobacco’ wait…. oh same thing just without benefit to big pharma. Just with one simple action ( legalizing marijuana ) you will achieve multiple things, 1) reduced crime, 2) increased tax revenue, AKA more money for state budget 3) reduce expense on imprisonment 4) new prison no longer needed ( again AKA more money back into state budget ) 5) save the money spent suing states that have it legalized ( again AKA more money back into state budget, and 6)increase sales through convenient and grocery stores ( AGAIN AKA more money in tax revenue off sales tax ). Sorry but solution seems pretty simple, and saying ‘its the budget’ doesnt change that money has been lost with our staying in stone age.
Charles Beason said it. We have options but our govt. is chosing to stay stuck in the 50’s. The world is changing and moving on with or without Oklahoma. Stop ruining peoples lives over a plant that ruins none. Also why have we put all our eggs in one basket with the oil industry? Focus on renewable energy. Fund schools properly and foster knowledge with out the threat of religion getting in the way and we can finally have an educated populous that will innovate and make oklahoma great. As it currently stands people are leaving OK left and right. This will cause a loss of tax revenue as well. How much of an effect it currently has on the states treasurey i do not know but right now any loss of tax revenue is bad. Soon I will be one of those leaving. It is appaling how we treat our education system and our people. Our children will not be prepared for the future with our current education system.
I agree with the comments on legalization of marijuana, but I also think that the columnist makes a good point. Even if we don’t change the law to actually require sales tax collection on Internet sales, can’t we at least do more to educate people that they still owe the sales tax, and appeal to them to voluntarily pay it? Essentially, I would like to see everyone understand that “avoidance of sales tax” is not a valid reason for shopping on the internet, that they still have legal and moral obligations to pay the tax on those items. There are plenty of other good reasons to shop online, but it really bothers me when I see “tax free” claimed on a web site, because they are spreading misinformation, leading people to believe that they don’t owe tax on items bought online.
Seems to me they are just proposing increasing taxes on the ones with the least as usual.. We were told that when they gave these tax cuts it was going to increase jobs and in turn increase revenue instead we have a huge short fall and their solution is to increase taxes on the middle class. Yes they use slick ways like such as increasing the cigarette tax because hey we can tax them because that is easy target no one likes them, reining in sales tax exemptions which means internet sales ect.. and modernizing the tax code which is code for increasing middle class and low class taxes by reducing child tax credits increasing property taxes etc. What they should be doing is rolling back those income tax cuts which is very apparent didn’t work and BTW I never say a dime savings from !!!
No one has mentioned one of the easiest and quickest ways to help the citizens of Oklahoma… Accept the ACA Medicaid Funds! Political stubbornness is hurting our state. There is nothing wrong with accepting federal help when it is offered. This could be done tomorrow! But, alas, the Tea Party would rather watch the state go down the drain than admit they were wrong about this.
All of what you’re saying makes sense. However, seems to me like the disastrous income tax cuts pushed through by our governor have a lot to do with the current crisis. The promises were of jobs and growth and new business investment in our state. Instead, it’s our schools and social services taking a hit, sending us from nearly last in the nation in many metrics, towards dead last.
Seems to me like repealing the income tax cuts would be a better structural change than simply adding internet sales tax, which I believe can already be paid annually via the Use Tax when submitting your tax return.
Why does it always seem like the only acceptable tax increases to Republican administrations are sales taxes? Maybe because they disproportionately impact lower income people who don’t have any political sway or campaign contributions? Dr Miller, could you lay out the budget implications from levying an internet sales tax as opposed to rolling back income taxes to pre-cut levels?
No, just keep cutting taxes, that will solve all of OK’s problems. If that doesn’t work, keep cutting until nobody pays taxes. Tax cuts solve everything, Jesus said so. He also said, make sure everyone is armed to the teeth. It’s written in the Bible. Something about blow the other check off with your semi automatic. It right next to the verse about tax cuts.
You could have saved yourself a lot of effort by saying:
“Dear OK government:
Raise taxes by any means necessary, dummies.
Hugs, Ken”
But, if your effort was to make this relatively simple solution sound complicated, mission accomplished!
What’s left to say? I agree with most of what’s already been said. Legalize marijuana and welcome to 2016 where we now know it is a plant with medicinal properties. It is not “Reefer Madness” and it is not reason to put fathers in prison while the State raises their children. Release those whose only charge is marijuana related and expunge felonies. The same men we are now spending thousands of dollars per year will be working and paying in taxes. The families may no longer need State assistance programs or at the very least have a diminished need and eventually no need. It reduces need for drug treatment as many people who use addictive substances such as opioids and barbiturates find marijuana to be effective and without the cost of addiction.
It reduces the number of children who die each year from huffing some legal but deadly product. The ripple effect of legalizing and taxing marijuana is staggering. I have advocated for sensible law reform for 40+ years regarding marijuana. It would have been great if Oklahoma would have led the way. We can at least follow those that had the courage to do the right thing. The research is there. Even young people know the lies. I have talked to so many young people who admit to smoking marijuana ( but it’s illegal) and yet they still do. I’ve been told by many young people to not blame marijuana for being lazy or unmotivated. That’s simply a lazy, unmotivated person who also happens to smoke marijuana. So many regular users talk about being Valedictorian, Honor roll student, in college Etc. It’s a plant that gives people options for medical treatment and or leisure time recreation. Making marijuana illegal and declaring war on the USA citizens who use it has not solved one single problem in 50+ years but it has created many , many problems.
Hemp.
I have lived in this state 4 and a half years now and I’ve yet to understand and see how this Use Tax crap can even be allowed to be imposed in the name of being fair and being honest. Where exactly does Oklahoma get off stealing money in unfair practices from its residents? They might as well just make a law that says every resident is required to pay an extra 500 bucks to the Oklahoma IRS for no apparent reason every year when they file their taxes, just because they ethically think they can.
What’s the criteria on this ridiculous tax law anyways? If I go shopping outta state, I’m not required to save receipts to report to Oklahoma IRS at the end of the year, am I? Didn’t think so but if I make an online order, all of the sudden I am? What if I’m outta state and I make that same order? Still supposed to report it, or what? That’s a bunch of crap.
I get that some people are actually just that dam cheap and that they try any way possible they can to avoid paying any kind of tax but dang, not everybody shops online or through mail-order catalog just so they can avoid a silly sales tax but don’t assume that’s why all people do it. Some things are only available online, or in a catalog or you have to travel a great distance to buy it, even outta state.
But either way regardless, how can they justify expecting me to pay sales tax on a purchase that wasn’t even in this state??? I just don’t get it. Just because I was- or sometimes am not in this state makes no difference. If I run down to my local grocery store to buy a gallon of milk, I pay sales tax. That’s how it works— well, supposed to anyway. Why do i have to pay sales tax on something that wasn’t even bought here? What, because I live here? So what. If you think about it, the state that has the online merchant where the order was made is the one who really should be getting sales tax from the purchase. I mean after all, that’s where the sale was made, wasn’t it? Doesn’t make sense. Just dirty pool as far as I’m concerned.
Just like with this BS accumulating penalty for having an unused, unregistered even inoperable vehicle. It’s pretty sad when you have to keep paying to register a vehicle that you’re not using and if you don’t put a non-op tag on it, which you have to pay for, you get charged an accruing penalty… that one there makes about as much sense as a screen door on a submarine….