Taxes

A Problematic Tax Cut

Oklahoma State Capitol

Oklahoma lawmakers passed an irresponsible tax cut this week that primarily benefits the state’s wealthiest residents.

The cut was touted as “much needed tax relief to families” in a legislative media release, but the reality is that only the richest in the state will see any real benefit. If lawmakers really cared about families here, they would actually raise taxes on the wealthiest 1 percent in order to cut taxes for the middle class and appropriately fund public schools. What's a middle-class family going to do with an extra $50 or so per year? How much "relief" is that going to bring about.

The Oklahoma Policy Institute issued this statement about the cut:

Today House members have ignored the wishes of most Oklahoma voters and the best evidence for what helps Oklahoma’s economy. They approved tax cuts that will do little to nothing for most families while taking over $250 million out of schools and other important foundations of our economy. They voted for automatic tax cuts for future years even though the Tax Commission can’t say how much it will cost and we have no projections of what our budget needs will be.

The cut reduces the top income tax rate from 5.25 to 5 percent in 2016 and then later to 4.85 percent. The cut is dependent on revenue growth.

Meanwhile, the state has pressing funding needs. There have been steep cuts in education funding since the economic downturn. Many state employees have gone without raises for several years. The state Capitol building needs major repairs. The budget faces a $188 million shortfall. A tax cut certainly isn’t a solution to any of these problems.

Meanwhile, the idea of instituting tax cuts for the future just doesn’t make much sense. Why not just wait until 2015 to determine 2016 budget needs? What will next year’s legislature do with taxes? Obviously, the tax cut is driven by election-year politics in an extremely conservative state.

Republicans, who hold all statewide offices and massive majorities in the legislature, continue to ignore the state’s pressing needs.

The Rich Reward

Image of sign from Occupy OKC

An analysis of Gov. Mary Fallin’s proposed income tax cut proposal shows that Oklahoma’s wealthiest households will benefit the most while 41 percent of its residents will get no benefit at all.

The overall average tax cut would be a paltry $29 while those in the top 1 percent in income would receive an average of $2,009.

The analysis, prepared by the Institute for Taxation and Economic Policy (ITEP) and distributed by the Oklahoma Policy Institute, clearly shows Fallin’s proposal is primarily designed to reduce the tax burden for the wealthy at the expense of the poor and middle class.

In her State of the State speech earlier this month, Fallin proposed cutting the top income tax rate from 5.25 to 5 percent despite the fact that Oklahoma faces a $170 million budget shortfall and has cut per pupil spending on a percentage basis more than any other state in the nation since 2008.

The regressive tax cut would mean a $135 million annual loss in revenue, according to OK Policy, while 41 percent of Oklahomans wouldn’t get a break at all because they aren’t taxed at the top income rate.

The arguments justifying the proposed cut are based on fallacious claims that it would drive economic development or that Oklahoma needs to be competitive with neighboring states with lower tax rates. There is no actual empirical evidence or specific studies related to Oklahoma that show this is actually true. Thus, it’s not difficult to view the proposed cut in pure class terms. The rich will benefit greatly; the poor will not benefit at all. The middle class gets a token cut.

The Oklahoman editorial board tried to justify the proposed tax cut in a larger perspective, but its right-wing blinders failed to produce a valid argument. This is from a recent editorial supporting the cut:

It’s also true that the more money you earn, the more money you save when the tax rate is cut. That’s just basic math. This doesn’t mean the rich are getting a bigger tax cut than the middle class. The rate reduction would be the same for both. Instead, it means the rich have more money than the middle class and pay more in taxes, which isn’t breaking news. They will pay more in taxes regardless of the rate.

This is a tired argument. Yes, the rich pay more in taxes because they are rich. Everyone gets that. Why repeat the obvious? It’s like saying, “The rich are rich. They have all the money.” To use italics just like The Oklahoman editorial, We know that. The point is the flat rate reduction doesn’t benefit thousands upon thousands of Oklahomans at all and only gives a small cut to many other Oklahomans. Why not RAISE the tax rate on the top 1 percent and lower the rate for others? Obviously, Fallin and The Oklahoman would scoff at this progressive idea, but at least it gives us something to debate rather than just listening to wishful thinking about economic development and reading another ad nauseam lecture about the intrinsic wonderfulness of rich people.

Along with her proposed tax cut, Fallin wants steep budget cuts to higher education and the Oklahoma Health Care Authority. This will ensure the state will continue to have a low college graduation rate and that the poor will continue to have limited medical care options.

Dumb? Unhealthy? For decades, these have been the sweeping and one might argue unfair stereotypes of Oklahomans from some people who live in other sections of the country and world. Fallin’s proposed tax cut wouldn’t change that at all.

Tax Cut Redux

Image of Oklahoma State Capitol

Even The Oklahoman editorial page has expressed caution about more income tax cuts this upcoming legislative session.

But that hasn’t stopped Gov. Mary Fallin from announcing she plans to call for tax cuts in her upcoming state of the state speech to open the next Oklahoma legislative session, which begins Feb. 3.

Fallin won’t say yet how much she wants to reduce Oklahoma’s top income tax rate of 5.25 percent, but House and Senate bills have been introduced that would slash the rate to 4 percent over the next four years.

The state currently faces a $170 million budget shortfall, education funding has been drastically cut over the last several years and the state’s corrections system desperately needs more money. Many state workers have gone without raises for seven years. The state Capitol building is crumbling and still needs vital repairs.

Given that bleak outlook, it would seem prudent for lawmakers to stabilize the budget by finding additional revenue, not push for irresponsible tax cuts, but this is an election year and the GOP controls both the House and Senate and executive branch of government. Those up for re-election, like Fallin, are likely to try to outdo one another in proving their conservative bonafides. Tax cut rhetoric will obviously be part of their campaign arsenals.

The real question is whether all these tax-cutting Republican lawmakers actually believe that their actions spur economic development or if they are engaging in a systematic process to defund government as much as possible without a shred of concern for the overall quality of life here.

A tax cut passed last year was tossed out by the Oklahoma Supreme Court because it obviously violated the state constitution’s single-subject rule. I’ve argued that it’s even possible lawmakers actually intentionally poisoned the legislation so it wouldn’t go into effect. Maybe that’s wishful thinking and gives them too much credit.

The political dynamic this year, however, is vastly different. U.S. Sen. Tom Coburn’s announcement that he’s retiring has unleashed a great deal of political maneuvering. U.S. Rep. James Lankford, for example, is seeking Coburn’s Senate spot, which puts his 5th Congressional seat in serious play. House Speaker T.W. Shannon might just be among those who also run for Coburn’s position, according to reports, and he could step down from his position soon.

What all this means on a larger level is that Republicans will be pitted against Republicans in highly contested and visible elections. The conservative extremism and ambiance will trickle down to less visible state legislative races, which will affect how incumbents approach this year’s session.

Will schools, state workers and corrections once again get left behind in all the political jockeying and extremism?

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