Taxes

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?

Obvious Decision: Court Throws Out Tax Cut Bill

Image of Oklahoma State Capitol

The Oklahoma Supreme Court decision Tuesday to throw out last year’s legislative tax cut and Capitol building repairs bill seems so obvious, so fait accompli, that one wonders if Republicans actually planned it this way.

The court decided House Bill 2032, passed last session, was unconstitutional since it violated the rule that legislation must be limited to a single subject. The bill would have cut income taxes from 5.25 percent to 5 percent starting Jan. 1, 2015, with additional cuts if revenues met certain expectations in coming years, while providing $60 million in repairs to the dilapidated state Capitol building.

Income tax cuts. Repairs to an aging building. No matter what one thinks about political logrolling, which is the practice of putting more than one subject in a legislative bill in order to get it passed, it seems clear then and now that HB 2032 was in violation of the state’s constitution.

Here are three speculative reasons for how all this transpired:

Poison pill. As I’ve written before, Republican leaders might have added the Capitol repairs to the income tax bill as a poison pill because they actually didn’t want tax cuts. Oklahoma’s schools have seen their funding drop by more than 22 percent since the Great Recession, and the majority of state workers have gone without a raise for seven years. Tax cuts fit the Republican ideology, but in reality they are terribly wrong for Oklahoma right now. The poison pill or knowing the court would eventually throw out the legislation allows Republicans to save face. They can say they at least tried to pass a tax cut.

Activist Judges. This one might be more of a stretch, but Republicans often complain of “activist judges” when a court ruling doesn’t fit with their ideology. It’s a standard GOP talking point. Could it be that Republicans actually set up this scenario so they could later rant about the legal system and push for electing state appellate judges and justices? Some Republican leaders want term limits for justices, too. This all might seem too involved, but it’s possible, and it overlaps with the poison pill speculation. At least, the GOP can try to score some political points with a bill they knew wasn’t going to stand up to a legal challenge.

Just plain miscalculation. Did Republican leaders really think that providing for tax cuts and building repairs in one bill didn’t violate the single subject rule? That seems unlikely to me. If so, then, well, I don’t know how else to put it, but it seems like a major miscalculation, and some might even say it was not the smartest move ever by the GOP here, which dominates state government right now. Perhaps, it was just a type of “hail Mary” political move to get Republican compromise on the bill, but it still doesn’t add up.

In response to the court’s decision, David Blatt, executive director of the Oklahoma Policy Institute, said:

The Supreme Court's decision to strike down misguided income tax cuts offers lawmakers a much needed lifeline to get our budget back into balance. In recent months, it has become more clear that another tax cut is the wrong priority when state revenues are not meeting projections, the state share of health costs is growing, prisons remain critically understaffed, and education funding remains stuck far below 2008 levels. Lawmakers should use this chance to recognize that we can't maintain our prosperity without paying for the services that citizens and businesses need.

Perhaps, in the end, the court has saved the Republicans from themselves, and that’s good for the state. Still, the Capitol building is in desperate need of major repairs, which could be funded by a simple bond issue, and there’s always the next session for Republicans to get it wrong.

Syndicate content