The fact that state revenues in April were down more than 11 percent than projected is one more reason to stop the income tax cut scheduled to take effect this coming January.
State officials recently announced revenues for April dropped by $87 million or 11.4 percent below the projection and $17.2 million below last year’s collections. Overall, revenues were at $673.3 million.
The worldwide oil and natural gas glut, which has reduced production and drilling in Oklahoma and thus lowered gross production tax collections, was blamed for the steep drop.
Meanwhile, the state faces a $611 million budget shortfall for this coming fiscal year, which begins in July.
Given the bleak scene the state currently faces, it only makes sense to stop the income tax cut from 5.25 to 5 percent, which was triggered by a rosier revenue forecast in December 2014. The legislature must pass legislation to stop the tax cut, but the Republican-dominated Oklahoma House, along partisan lines, already voted against a proposal to halt it. That was before this latest information surfaced, however.
No cuts are expected this fiscal year because of a budget cushion, but that could change. What’s less sure is what this new information means for budget forecasts for next fiscal year. Oil prices have begun to rise to around $60 a barrel after dropping to below $50 a barrel. That’s down from more than $100 a barrel last summer. But some analysts still believe oil will eventually drop again to the $40 a barrel range.
Oklahoma’s state budget is always affected by the collection of gross production taxes and part of the state’s boom-and-bust cycle, but that’s not the only pressure on the budget. Tax cuts in recent years, combined with dedicated funding in certain areas, have left the state scrambling to fund core services. Even when oil prices were high last year, the state still found it difficult to balance the budget, according to the Oklahoma Policy Institute.
As I mentioned in my last post and in several posts over the last two years or so, Oklahoma has cut education funding more than any other state since the Great Recession began in 2007. From fiscal years 2008 to 2015, the state cut education 23.6 percent, according to the Center on Budget and Policy Priorities.
The tax cut scheduled to take place in January will deplete the budget by $50 million and then $100 million annually after that. It is estimated by OK Policy that the average tax cut will be $31 for middle-class households. Only the wealthiest Oklahomans will truly benefit from it.
This latest news about April revenues shows again that the prudent action would be to stop the tax cut.
I’ve yet to weigh in on the irresponsible tax cut that will reduce state revenues by $50 million over the next fiscal year because it seems almost futile to do so.
But here’s the basic information. The state faces a $611 million budget shortfall. The income tax cut from 5.25 to 5 percent was triggered by revenue projections for fiscal year 2016 made back in December 2014. Those projections were rosier than they are now due in part to the oil glut that has reduced gross production tax collections here. The tax cut would be implemented in January 2016, costing the state $50 million for the remainder of the fiscal year. Once fully implemented it will cost $100 million annually.
The only thing that can stop the tax cut at this point would be legislation, and that seems unlikely to pass. Democrats tried to get such a bill passed in March but it was voted down in 72-28 partisan vote. Some businesses and institutions have also tried to put pressure on lawmakers to stop the cut.
Read about the finer points of this issue here in an Oklahoma Policy Institute post. The entire tax-cut trigger concept, as I’ve argued before, is deeply flawed and disingenuous. It doesn’t allow for flexibility and is based on a forecast that could rapidly change as it did this year. It isn’t based on “real” money, only speculation.
I would be opposed to any measure that would reduce state revenue right now, but if Republicans want to cut taxes they should do so upfront and make the necessary corresponding budget cuts. The fact they won’t do so shows they’re not entirely sold on the idea that tax cuts pay for themselves through additional economic activity. Isn’t that the mantra among conservatives? We’ve seen the disaster that idea has created in Kansas in recent years.
The argument has been made that the $50 million isn’t really that much anyway, but anything will help given the $611 million shortfall. As usual, only the wealthiest Oklahomans will see any real benefit from the tax cut. The average cut is $31 a year, according to OK Policy.
Oklahoma, it has been noted, has cut school spending the most of any state since the economic downturn that started in 2007. This is a dubious distinction on many levels. Now, its Republican-dominated legislature wants to give rich oil company executives and other wealthy people here a tax cut based on an outdated economic forecast and while the state faces a sizable budget shortfall. That’s the bottom line, and it’s just plain wrong and short-sighted.
Recently compiled statistical information confirms Oklahoma continues to rely heavily on the federal government for its financial viability and maybe its very existence.
This comes against the backdrop of all the anti-federal government whining among conservatives here about overspending and deficits in Washington, D.C. Here are some questions: If Oklahoma paid its fair share to the federal government, what would happen to its health and education systems? What would happen to the economy? Could it even exist as an independent state?
Without help from taxpayers from other states, such as New York, Oklahoma would lose approximately $12.5 billion a year if it got back dollar for dollar what it paid to the federal government each year in income, payroll, business, excise and estate taxes. Last year, the entire state budget for Oklahoma was only $7.1 billion.
The information comes from State Smart, an online, interactive site published by the National Priorities Project, which describes itself as a . . . “non-partisan research organization dedicated to making complex federal budget information transparent and accessible so people can prioritize and influence how their tax dollars are spent.”
Here’s how State Smart breaks down the numbers from Oklahoma: Using data from the most recent years available, Oklahoma received an estimated $38.6 billion from the federal government, which includes $7.6 billion for programs like Medicaid and Temporary Assistance for Needy Families; $22.2 billion in payments and grants for programs such as Social Security and Medicare and Pell Grants; $2.1 billion in federal contracts; and $6.7 billion for the salaries and benefits of federal employees.
Oklahomans and the state’s businesses paid in $26.1 billion to the federal government during the same time period, with more than 75 percent coming from individual and payroll taxes. That’s a $12.5 billion difference, with Oklahoma on the receiving end.
By comparison, the state of New York, using the same calculations, received $191.6 billion from the federal government yet paid in $207.4 billion. That means New Yorkers paid an estimated $15.8 billion more in taxes that they received back from the federal government, which is more than enough to fund Oklahoma’s shortfall.
According to the available statistics that have calculated this information through the years, Oklahoma has long been known as a “receiver state,” or a state that receives more back from the federal government than it pays in federal taxes. In itself, there’s nothing intrinsically wrong with this system. The country needs the federal highway system and federal outposts, such as courts, offices and military bases, in all the states. Some states will always have to give more to support the country as a whole. This helps keep our country’s democracy functioning.
But what should continue to aggravate progressives and, really, everyone here is the relentless criticism by some conservatives about the overspending of the federal government and the push on the state level for more tax cuts for Oklahoma’s wealthy.
I’m reminded especially of Gov. Mary Fallin’s argument in a recent State of the State speech that Oklahoma has something to teach the federal government about fiscal responsibility and her recent campaign television advertisements bashing the federal Affordable Care Act. Is the lesson that you should criticize a larger and more powerful entity that basically provides for your financial viability, that, let’s face it, actually provides for your existence? It’s as if Oklahoma is an immature, spoiled child complaining about his/her generous and loving parents. Remember, that’s $12.5 billion spoiled.
The anti-federal government rhetoric here is hollow and shallow. It’s reductionist sloganeering. It’s not rooted in reality. It’s hypocritical. It’s not helpful for the vast majority of Oklahomans, only the wealthy and conservative politicians pandering to low-information voters so they can get elected. It’s dumb.
The truth is Oklahoma, with its low taxes and its budget of only $7 billion or so, remains a state with poor medical outcomes and health systems, dreadfully underfunded education systems, extreme costly weather disasters and rotting infrastructure, and the only thing that keeps it afloat are tax dollars that come from other states.
The following question is purely speculative and philosophical. Could the state even exist as a separate entity if the billions of dollars provided by taxpayers from other states were eliminated, the Oklahoma legislature continued to reduce state revenue through tax cuts for rich people and the recent oil and gas fracking boom here went bust? I believe it would certainly create a new mass exodus from the state.
Sure, it’s difficult to imagine all that happening at once or Oklahoma becoming a part of Texas or part of a newly formed state carved out among other receiver states or perhaps even a federal territory again, but more extreme events in history have happened and will happen in the future.