Until the state proves it can live within its means, it really should stop reducing them (Guest post: Ken Miller)

State Treasurer Ken Miller

State Treasurer Ken Miller

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 November 2015 Oklahoma Economic Report and is reprinted with permission.

The billion dollar question that has persisted for months around the state Capitol is soon to be answered. On December 21, fiscal policymakers will have their first official estimate of funds available for fiscal 2017 appropriations. Until November revenues are baked into the projection, no one is certain of the estimate – but we do know it will be less than last year and that much of the problem is self-inflicted.

Throughout the Great Recession, suboptimal financial practices, like using one-time revenue sources, had to be employed to deliver cores services to our citizens. Unfortunately, reliance on nonrecurring revenue to balance the budget did not subside when the economy recovered to full employment. In fact, the appetite has only grown, resulting in state budgets that are constitutionally balanced, yet structurally imbalanced.

The state budget has become dependent on using one-time funds in both good times and bad. Oklahoma’s economy has expanded for the last several years, yet more than $1 billion in nonrecurring revenues have been tapped during that period to spend more than the certified amount.

Using such large amounts of alternative revenues to prop up the state budget is de facto admittance by policymakers that there is insufficient revenue to fund their desired level of government spending.

Outside of government, it is well accepted that nonrecurring revenues should not be used for ongoing expenditures and that recurring revenue streams should not be cut when current costs exceed them. Yet under the Capitol dome that has become standard operating procedure, and changes shouldn’t be expected next session given the expected severity of the shortfall.

“Common sense dictates that until the state proves it can live within its means, it really should stop reducing them, yet some “thinkers” continue to advocate eliminating the state income tax.”

Common sense dictates that until the state proves it can live within its means, it really should stop reducing them, yet some “thinkers” continue to advocate eliminating the state income tax – even arguing that the state’s largest funding source can be vanished without a replacement and still fund needed teacher pay raises. This contention would be laughable if not so devastatingly irresponsible – considering current funding status of core services. But rather than rebuke this nonsense, many in positions of responsibility actually enable it through their silence or rhetoric.

Rather than focus solely on lowering the income tax, Oklahoma should modernize our entire outdated tax structure, which was built for an economy that no longer exists. The ideal tax structure would broadly apply low rates to generate a stable and diversified revenue stream that does not unfairly burden property owners, discourage consumption, or reward idleness and retains the profit motive that drives entrepreneurship.

More immediately, any additional tax cuts should be revenue neutral. If policymakers want to further reduce the income tax, they must adopt a “pay-as-we-go” approach by eliminating one dollar of spending or credits for every dollar cut in taxes.

Improvements have been made, but even greater prioritization and operating efficiencies can be found. Those left on the table will require hard-fought battles against an entrenched status quo.

Just as fiscal stewards did by correcting suboptimal pension practices, with increased realization of the structural budgeting problems, policymakers can begin the difficult process of weaning our state off its dependency.

The opinions stated above are not necessarily those of OK Policy, its staff, or its board. This blog is a venue to help promote the discussion of ideas from various points of view and we invite your comments and contributions. To see our guidelines for blog submissions, click here.

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The opinions stated in guest articles are not necessarily those of OK Policy, its staff, or its board. To see our guidelines for blog submissions, click here.

2 thoughts on “Until the state proves it can live within its means, it really should stop reducing them (Guest post: Ken Miller)

  1. The radical, repeatedly disproven by reality, and never proven economic fantasy known variously as ‘supply side economics’, the ‘Laffer Curve’, (after Reagan’s Econ adviser who drew it on a napkin while dining w/ RR per legend), the ‘Trickle Down Theory’ and, Per GHW Bush as ‘VooDoo Economics’ has plagued the U.S. since the first Reagan Tax cuts of 1980-81. He had to raise taxes several times during 2 terms as did GHWB to stave off Econ collapse in the U.S. To see the latest evidence of the lie that is this theory see the state of State budgets here and in Kansas, where they are now repealing cuts/raising taxes under Gov. Blowback who pushed to eliminate their income tax and boasted the resulting flood of rising State revenue would prove Supply Side theory once & for all. (Crickets). Every GOP Pres leaves a massive deficit and steeply declining gov’t revenue to a Dem who then gets blamed and ridiculed as a “tax& spend liberal” for doing the necessary dirty work of cleaning up the wreckage of the trickle down effect. (see the B. Clinton tax hikes to repair Reaganomics, and Obama, who has reduced our Fed debt & deficits by more than any POTUS to date once he finally forced the end of the GW Bush tax cuts that, along w/ 2 wars on credit were the real cause of the 2008 collapse. Ask those who deny the Obama recovery to explain why the DOW was around 6000 when W left and is now at 17500 after topping 18000 for the first time in history. In fact after 5 yrs of nothing but harping from the “Conservatives” about Obamas failures to fix the economy they’re back to their other passion. War and fear of enemies. Romney promised Obama could never get unemployment under 6%. He did. This year. Sorry for the rant but facts are an endangered species in Oklahoma politics and media.

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