Tax Cuts
8:41 am
Mon January 20, 2014

Experts Disagree With Movement To Cut Oklahoma Income Taxes

Cutting income taxes. The state's been here before, and quite recently.

Credit 401(K) 2013 / Flickr Creative Commons

"The [Oklahoma] Supreme Court threw the legislature a lifeline by striking down 2032," said Oklahoma Policy Institute Director David Blatt at the organization's budget summit last week. 

As passed, House Bill 2032 would have cut the state income tax to 5 percent in 2015 and 4.85 percent after that. The state Supreme Court threw it out in December because it also provided money for capitol repairs.

"I know there will be a debate this session," Blatt said, "But avoiding further tax cuts seems to be the first measure that should be taken."

There will be debate — nearly identical House and Senate bills call for even steeper cuts over four years. And at a budget summit panel, Finance Secretary Preston Doerflinger said the commitment to cutting taxes runs deep.

"I'm going to tell you that the governor is always going to be a proponent of reducing income tax," he said.

The moderator asked economist and University of Central Oklahoma College of Business Dean Mickey Hepner if cutting taxes is a good idea.

"Good god, no!" Hepner said. "Our income tax burden is, again, below the national average. We are a low income-tax state."

Exactly how low depends on how much you earn. Blatt says the highest earners pay less than the current 5.25 percent.

"For those in the highest income brackets, the effective income tax rate is somewhere between 3 and 3.5 percent," he said.

And when you look at the share of income families pay in state and local taxes, low-income Oklahomans pay more.

"In fact, they pay about twice as much in all state and local taxes — income, sales, property — than do the wealthiest segment of the population," Blatt said.

The Institute for Taxation and Economic Policy says Oklahoma families with the lowest 20 percent of incomes pay 10.3 percent of what they earn in state and local taxes. The top 1 percent pay 4.6 percent.

Lower-income families also pay a larger share of their earnings toward sales tax. State House Minority Leader Scott Inman said Oklahoma is headed for a problem Kansas recently had: $1 billion budget shortage after slashing income taxes.

"What they did was they helped out a few folks who pay a lot of money in income taxes and hurt everybody else who buys groceries," Inman said. "I do not want to see Oklahoma go down that path."

These experts worry about the entire state, not just certain income brackets. Hepner says the economy has been stagnant the last 18 months.

"General revenue fund income tax collections are down 11 percent compared to last year so far this fiscal year," he said.

Blatt says state revenues haven't returned to pre-recession levels yet.

"And tax collections have not been keeping pace with state economic growth overall," Blatt said.

Tax cuts are part of that. Cuts enacted from 2004 to 2007 cost the state hundred of millions of dollars in revenue from 2006 to 2010, according to the Oklahoma Tax Commission.

The cuts the Supreme Court struck down would have cost almost $500 million over three years. Cuts exacerbate a structural deficit the state faces, where normal revenue growth can't keep up with normal expenditure growth.

Hepner said the state is at a crossroads where leaders must choose to improve Oklahomans' quality of life or to cut their income taxes.

"And if you think about a world where we just continually cut taxes, you end up in this kind of situation, you think about, 'Well, what would an economy of a place that's populated with unhealthy, uneducated individuals who have to travel down dirt roads populated by criminals' ... that kind of low-tax, low-government environment is not really one that's all that conducive to economic growth," Hepner said.

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