Taxes

Does Tax Cut Measure Contain ‘Poison Pill'?

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After watching the Oklahoma House debate and then pass future income tax cuts for 2015 and 2016 on Wednesday, I almost have to wonder if Republicans haven’t intentionally placed a poison pill in the legislation through the process of logrolling.

The overall GOP argument for the cuts—basically, let’s cut taxes to make businesses locate here—was as vague and sloganeering as it gets and lacked any real, accepted empirical evidence beyond right-wing distortions and wishful thinking. The overall, rhetorical defense of the tax cut on Wednesday lacked basic conviction.

Meanwhile, the tax-cut legislation, according to Republican state Rep. Scott Martin, a Norman Republican, does “two fantastic things.” (Note the word “two.”) Those two things: (1) It cuts the top income tax rate from 5.25 percent to 5 percent in 2015 and then, perhaps, to 4.85 percent in 2016 if revenues go up enough to pay for the cut, (2) and it provides $120 million funding for repairs of the state Capitol building, two diametrically opposed initiatives.

The process of adding unrelated subjects to legislation in an attempt to circumvent the democratic process is called logrolling, and it’s unconstitutional here in Oklahoma. No matter how the Oklahoma Supreme Court eventually rules on this legislation, Republicans by their own admission and rhetoric have clearly separated it into two—shall we count it again, two, two subjects in one--different initiatives. It seems, forgive the word play, almost “two” obvious.

How many Republican legislators were willing to buck the bullying of the GOP leadership and vote no, either because they oppose the tax cut or the immediate allocation of money to repair the crumbling Capitol building? To be sure, seven Republicans did stand up, but in the end the vote was 65 to 35 to approve the measure, and now Gov. Mary Fallin will sign House Bill 2032 into law.

Fallin and the rest of the GOP leadership had to know the legislation would eventually face a constitutional challenge in the courts because it contains more than one subject so their overall reasoning deserves any speculation it can muster. Either they intentionally poisoned the legislation knowing it would never become law or, probably more likely, they’re simply rolling the judicial dice, knowing they can always come back next legislative session and pass the same or even larger tax cut for 2015.

Either way, Republicans can proudly say they passed a tax cut in 2013, which seemed to be the main purpose of the legislation, anyway, since no cut would go into effect until 2015. Remember, there’s still the next legislative session to undo or revise the whole thing. The entire GOP tax-cut spectacle this session could easily become meaningless next year.

This arcane political process means little or nothing to most ordinary Oklahomans. More than 40 percent of them won’t even get a tax cut under the legislation, and the average cut is only $88 annually. Those with the highest incomes fare much better, of course, because it’s a flat, regressive income tax cut. This is absolutely a tax cut for Oklahoma’s wealthiest citizens, though Fallin insists it “will let Oklahoma families keep more of their hard-earned money.” Well, frankly, governor, only some Oklahoma families, and it isn’t much money at all.

Meanwhile, the 2015 and 2016 tax cuts would cut $237 million from state revenues after a time period of drastic budget cuts to education. The proposed state budget, released yesterday, doesn’t even begin to address inadequate education funding in Oklahoma.

On the brighter side of Wednesday’s action, House Democrats held together and voted unanimously against the tax cut, and state Rep. Scott Inman, a Del City Democrat and the House minority leader, delivered the day’s most passionate and intelligent remarks about the issue.

Here’s to Inman, and his "it's important" speech. It’s difficult to rouse energy and compassion in one losing cause after another in one of the reddest states in the country, something this blog has tried to do for nearly 10 years now. Inman gives us inspiration to keep up the progressive fight.

Back To The Future Tax Cuts

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Gov. Mary Fallin and legislative leaders have announced a plan for future tax cuts in 2015 and 2016 that primarily benefit the wealthiest Oklahomans and will cut money available for schools by millions of dollars in coming years.

It’s an irresponsible plan in today’s uncertain economic environment and can easily be seen as part of the GOP strategy to “starve the beast” of government funding through incremental tax cuts. Neighboring Kansas, which cut taxes recently and is now facing major budget problems, wasn’t mentioned in the announcement.

On Tuesday, as expected, Fallin, House Speaker T.W. Shannon, R-Lawton, and Senate President Pro Tempore Brian Bingman, R-Sapulpa, announced they had reached an agreement on the future tax cuts. Under the plan, the top rate would drop from 5.25 percent to 5 percent in 2015, and then to 4.85 percent in 2016. The second cut is dependent on revenue growth in 2016 that is equal to or greater than the amount of lost revenue.

Besides mostly Democrats and the Oklahoma Policy Institute, a state think tank, there appears to be no real emerging opposition to the tax-cut plan at the Capitol. Republicans now hold super majorities in both the House and Senate. A press release issued by Fallin’s office said the cuts and two other measures dealing with workers’ compensation and state buildings have been “identified as having the support of both the governor and majorities in the House and Senate.”

As I’ve written before, the futuristic tax-cut plan lacks basic logic. Why not simply wait until next year, gauge the economy and incoming revenues, and then decide on a tax cut for 2015? This plan, if passed, will tie the hands of legislators next year if there’s a major drop in revenues. How many Republican legislators would ever vote to rescind a tax cut?

According to media reports, the cuts would reduce state revenue by $237 million annually if and when they go into effect. This comes right after a time period in which education funding in Oklahoma has faced massive cuts. The cuts also don’t address unneeded tax credits that lower state revenues each year.

The cuts would mean an $88 to $140 annual savings for the average Oklahoma taxpayer, according to one media report, but because it’s a flat, regressive cut state residents with the highest incomes will pay thousands less each year. The question becomes if an $88 tax cut is worth lowering the quality of life here through inadequate education funding.

Fallin claims the cuts will “boost our economy and help us to create more jobs and bring more businesses to Oklahoma,” but what businesses besides oil and gas companies are going to locate here when our educational systems are so vastly underfunded?

Kansas is still grappling with recent tax cuts that could eventually lead to a $1 billion shortfall by 2018, according to some estimates. If that’s what most Oklahoma Republicans want for our state, then they should simply argue for it and not spend time covering their tracks with sweeping and outdated GOP myths about tax cuts.

In response to the plan, OK Policy issued a statement that argued it would “commit us to tax cuts two years from now, when we have no way of knowing what Oklahoma’s needs or economic situation will look like.” The organization also issued a call to action to “stop these irresponsible tax cuts” through a letter drive to legislators.

The tax cut plan, according to the release from Fallin’s office, also includes $120 million in funding to repair and renovate the state Capitol building, which is a worthy endeavor. But the potential, long-term cost to educational and other vital services caused by inadequate funding is simply more important despite the Capitol’s obvious symbolic value. In fact, it would make more logical sense to NOT cut taxes at all until the Capitol is renovated and education funding is restored.

The other two measures contained in the announcement would change the state’s workers’ compensation system from a judicial process to an administrative process and would centralize the management of state buildings and provide a plan for renovations. Bingman has championed the workers’ compensation system “reform,” which I oppose and wrote about here. Shannon championed the building plan.

Dogma, Presumptions Blur Tax Cut Arguments

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The Oklahoman editorial board has attempted to philosophically defend the GOP push for a tax cut this year despite the cut’s future impact on revenue in a state that has faced budget reductions in recent years.

Unlike Gov. Mary Fallin and to an extent House Speaker T.W. Shannon, a Lawton Republican, who mostly engage in sweeping, Republican generalizations when it comes to cutting taxes, a recent commentary in the newspaper actually tried to parse the issue and offer specific counter arguments to those people who oppose an income tax cut right now.

The newspaper should be commended for actually trying to construct a logical argument, but ultimately the overall argument fails because of misguided assumptions, lack of empirical evidence and over reliance on unproven conservative dogma. It would be nice if state leaders, including editorial writers at Oklahoma’s corporate media, could have a rational discussion about taxes, but it can’t happen if we must begin with prevailing conservative presumptions that simply aren’t true.

The editorial, “High-tax states wouldn’t mind an economy like Oklahoma’s” (April 12, 2013), essentially offers counter arguments to the Oklahoma Policy Institute, which has opposed any income tax cut this year, primarily because of its future effect on state revenues and in light of recent budget cuts. The latest proposal under consideration, which came out of the state Senate, would drop the top tax rate from 5.25 percent to 4.95 percent starting in 2015, sunset some tax credits and would cost the state $169 million a year. That proposal is now under negotiation. Fallin and Shannon have pushed for a cut from 5.25 percent to 5 percent starting in 2014. It would cost the state more than $100 million a year.

I have outlined my argument against a tax cut at this time here, but in this post I want to address some of arguments put forth by The Oklahoman in its response to OK Policy and others opposed to a cut.

The commentary, for example argues that a “tax cut is hardly going to make the poor poorer” because the top income tax rate starts at $8,700 for a single filer. This argument supposedly addresses concerns OK Policy has about the relationship between taxes and poverty in the state. But the editorial doesn’t address the fact that any flat cut that doesn’t take into account income brackets is always regressive and shifts the most money to the wealthiest in our society. Also, declining government revenues eventually lead to budget cuts or stagnation, which could mean fewer dollars for safety-net programs that help the poor.

The Oklahoman dismisses OK Policy’s concerns that state workers haven’t had a cost-of-living raise since 2006, arguing in italics that it’s a political sales pitch that comes off like this: “You need to accept less take-home pay so a bureaucrat can get more.” Not every state worker is a bureaucrat, of course, and under Fallin’s original plan 43 percent of Oklahomans wouldn’t even receive a tax cut. I’m unsure the sales pitch for stopping a tax cut right now comes off to a majority of people as described by The Oklahoman. Here’s the real sales pitch: You will receive no tax cut at all or a token amount of money and it will take money away from schools.

Higher education funding from the state has declined in recent years because of lower state revenues, prompting tuition hikes, but that’s okay, according to the commentary, because colleges will raise tuition no matter what. This type of argument dismisses any real discussion of just how much tuition has skyrocketed or of the increasing cost of college, which is saddling many students with crippling debt. It also makes a presumption that colleges will always raise tuition each year, which isn’t necessarily true. A few years ago, for example, many state colleges came together and gave students a year without any increase. It also implies that colleges would have raised tuition that same amount with more state support. I don’t think that’s true, either.

The editorial goes on to argue that “no amount of taxation is ever so great that government boosters won't claim poverty,” which is a misguided, conservative assumption. On the philosophical level, so-called “government boosters” are usually people who want a fairer, progressive tax system. They actually favor tax cuts for the less fortunate in our culture. They want to adequately fund education and safety-net programs and call attention to the growing income inequality between the richest people in our culture and everyone else. Specifically, they recognize the state’s historical and well-documented lack of decent funding for education and the state’s historical and well-documented poverty levels. How can we not “claim poverty” when it stares us in the face?

Many of us opposed to the tax cut have argued that the median cut is only $39 a year, a trivial amount, at the same time it collectively takes a large chunk of money away from overall state revenues. The answer from The Oklahoman is more Republican dogma and presumption. The editorial claims, even though the cut is small the private sector “allocates money far better than any government agency.” That’s certainly true if you’re a billionaire, like the newspaper’s owner, Philip Anschutz, but it’s not so true if you’re working at a minimum wage job and don’t even receive the extra $39 annually. The free market enforces poverty as much as it makes people rich. The newspaper is making an assumption certainly not held by everyone and probably not even a majority of voters in this country.

Finally, the newspaper claims tax collections actually went up after recent tax cuts, but it completely ignores the impact of the Great Recession on Oklahoma and the steep decline in revenues after 2008. I’m trying hard not to engage in hyperbole here, but this claim borders on rewriting not just history but extremely recent history. A strong argument could be and has been made that the tax cuts sent state revenues into a devastating downward spiral once the economy tanked.

Still, I’ll give The Oklahoman some credit here for the attempt to argue ideas and also for its rather subdued approach to the tax-cut proposals presented by lawmakers so far this year. The editorial seems okay with the idea that lawmakers “may favor state spending over tax cuts this year, and consider tax cuts again in future years.” I’m okay with that idea, too.

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