Pupil Spending Decline, Revenue Drop Weakens Tax Cut Argument

“Have a surplus? Try a tax cut. Deficit too high? Try another, Feel a cold coming on? Take two tax cuts, roll back some regulations, and call us in the morning!”—President Barack Obama on Republican strategy in his speech at the Democratic National Convention

News that Oklahoma has had a steep drop in per pupil spending since 2008 and that August’s state tax collections were less than a year ago shows the lingering impact of the Great Recession and the volatility of the oil and gas industry.

The next legislative session is months away, but Gov. Mary Fallin and GOP legislators should reconsider pushing for and promising tax cuts in the current economic environment. Until state revenues fully recover to levels before the 2008 economic downturn, any tax cut proposal that is not completely revenue neutral would be irresponsible.

It’s one thing to cut taxes in a time of surpluses and budget growth, but cutting taxes primarily for wealthy people in a time of budget cuts and declining revenue is simply ideological recklessness. Even if revenues climb again this month and in the months ahead, lawmakers should set aside tax-cut plans for the next legislative session.

The Oklahoma Policy Institute reported last week that a new report by the Center of Budget and Policy Priorities shows that per pupil spending has dropped a staggering 20.3 percent in Oklahoma since fiscal year 2008. Oklahoma saw the third highest drop in the country behind Arizona and Alabama, according to state rankings.

In a blog post discussing the report, Gene Perry, a policy analyst for OK Policy, writes, “A strong education system is essential to creating and maintaining a thriving economy. Businesses need a well-educated workforce, and education cuts undermine the state’s ability to produce workers with the skills needed to compete in a global economy.”

GOP Lawmakers tried but failed to pass an income tax cut last year even as educational funding continued to decline. The 20 percent decrease in per pupil funding is a disgraceful tragedy with far-reaching, negative repercussions for the state’s long-term future.
Meanwhile, Oklahoma Treasurer Ken Miller reported last week that overall August tax collections were down 2.8 percent from last year primarily because of a 53.7 percent drop in gross production taxes on oil and gas.

According to a news release, Miller said, “For 10 of the past 12 months, we’ve seen the drop off in gross production collections accelerate while sales and income collections have kept growing. But because of the large impact of the energy industry on the state economy, it’s important to keep an eye out for spillover effects that may be attributable to weakness in oil and gas collections.”

The state’s tax-revenue dependence on the oil and gas industry—natural gas prices, in particular, have plummeted in recent months—will always make the Oklahoma budget process a dynamic even precarious process, but sustained steep drops in gross production taxes are a troubling indicator.

Gov. Mary Fallin recently told the Wall Street Journal that she plans to push for an income tax cut again next legislative session. The staggering decline in per pupil spending since 2008 and weak tax collections should put that plan on hold for now.