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A Bad Time to Cut Taxes in Oklahoma

 

Although this is about Oklahoma, your state may be experiencing some of the same problems. Many states  approved a Taxpayer Bill of Rights and many  state officials and legislators have signed Grover Norquist’s Tax Pledge, both  which make it difficult to raise taxes. When those are coupled with past and proposed  tax cuts, many states are now experiencing a budget squeeze that makes it difficult for them to provide core services for their citizens. A recent tax proposal in Oklahoma will give tax cuts to some of the wealthiest citizens, increase taxes for others, and result in $130 million loss in revenue for the state – if passed.

This is really a bad time to cut taxes in Oklahoma. Oklahoma is already facing problems paying for education, public safety, and infrastructure improvements. The recent tax proposal worked out by Governor Mary Fallin and Republican Legislature leaders falls far short of the needs of the state and earlier goals. It would reduce state revenues by over $130 million at a time when schools and other core services are struggling to recover from years of crippling budget cuts. This means fewer teachers and larger class sizes, higher tuition costs, fewer public safety officers, and resources cuts for those who serve the most vulnerable Oklahomans.

The Senate and House leaders have insisted for months that any tax cuts will be revenue-neutral so as not to impact the budget. Their effort to cut credits and subsidies for special interest groups have failed as lobbyists for the special interests have been effective in keeping the subsidies intact. It  leaves the state on the hook for hundreds of millions of dollars in payments to oil and gas producers and other special interest groups and does nothing to address the skyrocketing costs of these credits.  Yet they have come up with a proposal to cut taxes  even though the proposed tax changes are not revenue neutral.

The political benefit of an advertised tax cut is much greater than any claimed economic benefit. The state leaders have assured us that cutting the income tax will create jobs and improve the economy. An analysis of a Wall Street Journal op-ed piece urging tax cuts reveals the intellectual bankruptcy of Oklahoma’s tax cut arguments and finds: “Tax cuts financed by reduced spending on public services … have been linked with negative growth consequences.  Government expenditures matter – other things equal, poorer public services hurt economic performance.” It is also very difficult to see how anyone can create a job with the average $60 tax cut. However it is very clear that $130 million could be used to fund 2000 jobs for teachers, policemen, firemen, and public servants.

 A Tax Cut for the Wealthy: The Oklahoma Tax Commission finds that 40% of the tax cut being considered will go to the top 4% of households but increase taxes for 24% of taxpayers.  Under this proposal, the tax increase and elimination of deductions will fall more on the lower and middle income wage earners. Our present income tax code is based on the idea that those who profit most from our state’s wealth, resources, and opportunities should pay a greater share of taxes. That’s fairer and more pragmatic than shifting more taxes to those who have less. This plan would increase taxes on 24% of low and middle income taxpayers. The OK Constitution forbids a tax increase without a three quarters vote of the Legislature or a referendum. When does that 24% get to vote on their tax increase?

Constitutional Issue : There is also a constitutional question involved. Oklahoma’s Governor, Lieutenant Governor, and 33  state representatives have signed The Americans for Tax Reform Pledge that they will oppose any effort to raise taxes. However, the Oklahoma Constitution, says in Article X, Section 5: under Surrender of Power of Taxation : “ A. Except as otherwise provided by this section, the power of taxation shall never be surrendered, suspended, or contracted away. “ Those who have signed Grover Norquist’s pledge appear to be in violation of the Oklahoma State Constitution as they have contracted away their power of taxation. The Pledge is signed and witnessed as a legal document. Those who have signed the pledge should  recuse themselves from any action on the state income tax.

A request to Attorney General Scott Pruitt to rule on the question was sidestepped. The Attorney General replied to a letter requesting his opinion  that his office did not research questions for individuals and suggested that the question be taken to the Oklahoma Policy Institute. When the complaint was then filed on the Attorney General’s official complaint form, the reply was: “Since the pledge was not filed as a bill in the Oklahoma legislature it does not seem that it would have a binding effect on the parties who signed it. Therefore, there would not be a conflict with the Oklahoma Constitution. You may consult an attorney to see if there are legal consequences that might be available to you.” The Oklahoma Constitution says it is the duty of the Attorney General “ to support, obey, and defend the Constitution of theUnited States, and the Constitution of the state of Oklahoma.” Apparently one must file a lawsuit to encourage the Attorney General to carry out his responsibilities.

Mortgaging Oklahoma’s Future: Although the state’s leadership has not budgeted adequately for the present or the future, their current tax proposal could have far-reaching effects. The proposal contains a trigger that would reduce the top tax rate to 4.5 % – if state income grows by 5 %. Part of the reason the state is in its present financial trouble is from a tax reduction trigger set by a previous Legislature. As a result of the 5% growth from the bottom the recession, the top tax rate was reduced from 5.5 to 5.25% last year, even though the revenue was lower than when the trigger was set. Tax triggers that automatically ratchet down the top income tax rate are opposed byOklahoma’s business, civic, and educational leaders as the Legislature is locking the state into a tax cut without knowing the needs or funding or sources available in the future. Once cut, it is very unlikely that taxes could be raised again, as state question 640 mandated that any tax increase must pass either a 75 percent vote of the Legislature or a vote of the people. However, tax cuts can be passed by a simple majority in both houses, which means that tax cuts are easy to make but tax increases, no matter how badly needed, are unlikely to be passed.

(c) 2012 J.C. Moore

Note added 5/25 /2012: The Tulsa World announced today that the tax cut plan is dead for the year but the governor has sworn she will revive it again next year. It is not clear whether reason prevailed or whether squabbling about the tax cuts being too much or not enough kept the cuts from passing. The budget did pass, however, it left many state budgets that cover core services about what they were in 1998. You may wish to check here to see if any among your  state officials and legislators  have signed Grover Norquist’s anti-tax pledge.

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