The Oklahoma Tax Cut Massacre
I’m going to write more about the GOP tax-cut meltdown now that the Oklahoma Legislature has adjourned, but I’ll offer some initial, brief observations this holiday weekend.
In her February state of the state speech, Gov. Mary Fallin announced a plan to cut the state income tax from the top rate of 5.25 percent to 3.5 percent, which would then be followed by further cuts. This plan was a centerpiece of her speech. It made national headlines, and the overall Oklahoma tax-cut effort was eventually vaunted by The Wall Street Journal.
Immediately after Fallin’s speech, a tax cut at that point seemed almost certain. Fallin is a popular Republican governor in an extremely conservative state. Republicans control state government. It seemed then like only a sudden financial crisis could have derailed a cut.
Her announcement was followed by a series of counter proposals from Republicans that included the so-called “Laffer” plan that would have cut the income tax immediately to 2.25 percent to a last-minute plan that would cut the tax to 4.8 percent. The 4.8 percent plan, which included a trigger for a further cut, seemed like it would pass, but at the very end of the session House leaders refused to bring it to a vote.
The House then offered up what can only be described as a last-ditch, desperate, ill-conceived plan to cut taxes based solely on future triggers tied to revenue growth, but it was dismissed by the Senate and Fallin had little enthusiasm for it.
In the end, there was no tax cut, a fairly remarkable non-occurrence given all the tax-cut hyperbole and the Republican stranglehold on state government.
The conventional wisdom, expressed here, is that the GOP met resistance with reforming the overall tax code by various vested interests, and obviously there’s some truth to that, but that only gives Republicans a lame excuse. Republicans had to know going in that changing the state's tax structure would create tension. Is there more to the story?
Here are three other points that won’t get made in the corporate media here:
- This will seem obvious to some people, but perhaps state Republicans here simply don’t have the intellectual apparatus to create and implement sound tax policy. Certainly, Fallin, House Speaker Kris Steele and other Republican leaders are intelligent enough people. That’s not my point. But the people behind the scenes drawing up the specifics of any tax-cut plan have to be able to calculate its immediate and long-term effects. When the 4.8 percent plan was presented, Republican leaders seemed befuddled when it became apparent that many Oklahomans would actually pay more in taxes because of the loss of the personal exemption. Didn’t anyone do the math before the plan was proposed? As I wrote in the last days of the session, Fallin and other GOP leaders should at the very least know how any tax-cut plan they proposed would affect them personally. If they don’t know, then the plan is simply not vetted.
- The tax-cut meltdown shows it’s obvious that Republicans are not unified at the state Capitol. That’s probably saying it too nicely. Fiscal conservatives, such as Steele, who are concerned about core services and education, are up against starve-the-beast social conservatives and the staffers at the Oklahoma Council of Public Affairs (OCPA), who agitate for a more slash and burn policy when it comes to government spending. It was OCPA that pushed the draconian Laffer plan, which was supposedly based on the ideas of Arthur Laffer, a former economic advisor to the late President Ronal Reagan. In the end, responsible Republicans knew that the Laffer plan was ludicrous, disingenuous and would have damaged the state for years to come. Watch for more clashes between the OCPA and Republicans next year, especially if President Barack Obama is reelected and the Obama-hysteria continues here.
- Did Republican leaders intentionally sabotage the tax cut plans because they know state agencies and education have faced severe budget cuts since 2008? I’m just throwing that out there. Here’s how it might have worked: Once the Republican leadership realized how much any tax cut would hurt schools and other core services, they decided against a cut, especially when declining natural gas tax revenues became an issue. To save face after all the initial hyperbole, they proposed last-minute plans that would almost certainly die on the vine. The counter to this, obviously, is my first point about a lack of an intellectual apparatus. Take your pick.
That’s my first take on the issue. There were other factors, of course, that prevented any tax cut this year, including the steady opposition of the Oklahoma Policy Institute, which deserves credit for leading the way and crunching the numbers. In terms of the state’s two main think tanks, OK Policy really handed it to the better-funded OCPA this time around. But there’s next year, and, if state revenues continue to rise, Republicans will surely try to cut the income tax again to primarily benefit the state’s wealthy people.