OKPOLICY.ORG
By Wayne Green
Two Republican legislators have a provocative idea for how to deal with Oklahoma’s shortage of teachers — exempt them from state income taxes.
Sen. A.J. Griffin and Rep. Leslie Osborn made the proposal in a March 18 op-ed column in The Oklahoman.
“It’s time to eliminate Oklahoma’s income tax on pre-K to 12th-grade teachers and paraprofessionals,” the lawmakers wrote. “This will provide a boost in take-home pay for teachers while efforts are made to address compensation challenges.”
Their argument is not just about how to give money to teachers, but generally also about the state’s disadvantage in competing for talent against states, including Texas and Washington, that don’t have an income tax.
Let’s take a look at their idea.
How much would an income-tax exemption benefit teachers? Based on estimates in a fiscal impact statement prepared by the Oklahoma Tax Commission, the result of a 100 percent income tax exemption on a public school teacher earning the state average of $44,118 a year would be about $1,367.66 a year.
That’s not quite the $2,000 a year raise that state Superintendent Joy Hofmeister said the Legislature should give teachers in exchange for making the state school year two days longer, but it’s close, especially after you deduct taxes from Hofmeister’s raise.
Multiply $1,367.66 a year by all the public teachers in the state, add in the private school teachers (average pay: $35,282), and the impact on state revenue turns out to be a little more than $53.5 million a year, according to the tax commissioner numbers.
I don’t have figures for adding in paraprofessionals in the school system, but obviously that would raise the price tag. For argument’s sake, let’s stick with $53.5 million.
There are a lot of ways we could make up that lost revenue. For example, we could eliminate a little more than half of the Department of Public Safety. Griffin put the idea into legislation as Senate Bill 624, which was assigned to the Senate Finance Committee, where it died of neglect.
But another proposal, Senate Bill 93, by Finance Committee Chairman Mike Mazzei is in better shape. It would give public and private school teachers (and school administrators) a 25 percent income-tax exemption. That’s a take-home pay boost of about $342 a year for the average teacher ($592 for the average administrator) and a fiscal impact of a little more than a $15.5 million a year. Mazzei’s bill passed the Senate unanimously and is pending in a House committee.
I give Griffin, Osborn and Mazzei credit for creativity and dedication to gradually wearing away the state income tax, but I don’t like their idea for two reasons.
First, the state can’t afford $53.5 million a year, or $15.5 million. This year the state has a budget gap of more than $611 million. Some of that revenue gap is caused by bad economic times in Oklahoma, cheap oil.
But Oklahoma Policy Institute Executive Director David Blatt recently made a convincing case that Oklahoma’s budget has a structural deficit, a built-in revenue failure cause by policy choices in recent years to undermine the general tax structure, especially the income tax. Last year, when oil was at all-time high prices, the state still had a significant budget hole that had to be made up by taking money from state agency’s cash accounts and other one-time funding sources. The state’s general tax system has been crippled to the point that it can’t support state government even in good times, Blatt argues.
Take another $53.5 million from the revenue stream and you have $53.5 million less to spend every year to keep prisons sound, roads safe and schools open.
Second, general taxes should be general. Everyone should pay them, which allows them to stay as low as possible.
If you start exempting groups because you like them, then everyone else has to pay more for revenue to stay even. In the Oklahoma system,, which makes tax increases practically impossible, that means higher fees: Tuition, traffic fines, licensing costs all go up.
When general taxes stop being general, the social contract breaks down. Other groups (police officers, prison guards, all state employees, nurses, astronauts, professional athletes … ) start asking for the same favorable treatment. Pretty soon only unpopular people are paying taxes, and they’re looking for jobs in states with a more rational taxation system.
Imagine a state with no general taxes, but a thousand inequitable fees, fines and charges that it uses to fund government services. That encourages cheating and bootlegging (Remember when half the cars on Oklahoma roads seemed to have Texas tags?) and creates a system that is less efficient, less equitable and less business-friendly. The solution is a graduated general tax system with rational user fees set at levels needed to support specific services and no more.
Along a similar line of thinking, teachers should pay state income taxes for the same reason that ditch diggers and oil millionaires should pay them. Everyone should have skin in the game. They should see the government as something they pay for, something they own. This seems especially important for people who will be helping to shape the next generation’s attitude about government and taxes.
Teachers deserve a raise, a simple, old-fashioned raise where everything goes up — gross income, net income and income taxes paid. Their bank account gets bigger and so does their stake in state government.
