Taxes

Debates or Predictions?

Image of Oklahoma state Capitol

A recent editorial in The Oklahoman asks an important question in its headline: “How much should we expect from state government, and at what cost?

The editorial goes on to quote the Oklahoma Policy Institute, which consistently addresses this issue in detail. OK Policy, which has pointed out the problems with a standstill budget for education, argues: “This makes the need all the more critical for an honest, well-informed debate about what we expect from state government, how much our obligations will cost, and how we will pay for them.”

The editorial also mentions state Treasurer Ken Miller as a moderate voice that could help determine just how much education should be funded.

I adamantly agree with the idea that the state needs “an honest, well-informed debate” about funding for state government and an honest assessment of what that funding actually purchases. I also agree that both OK Policy, led by David Blatt, and Miller, a Republican, can bring much-needed substance and honesty to the debate.

I framed the issue in a more partisan, perhaps blunter manner as the Oklahoma Legislature considered an income tax cut this year. In a May 24th post, I wrote:

If Republicans want to cut taxes, then they should cut taxes and specifically cite how much state government spending will be cut in the process. I’m adamantly opposed to any tax cuts right now, but at least this would be an honest and transparent approach. It would allow people to plan their lives. For example, if teachers know they’re going to lose their jobs, then at least they can take action.

I think most reasonable people, people not completely blinded by ideology, can agree that it’s vital to have a transparent approach to funding for state government and taxation issues. I also think most reasonable people would also conclude that revenue predictions should be based on accurate, specific information, not wishful thinking.

In an ideal world, there would be a consensus on these points, and we could tackle problems here and improve the quality of life.

But there’s never an ideal world. This is how Gov. Mary Fallin was quoted recently in a NewOK.com posted story about how she plans to push again for a tax cut next year:

What got lost in the debate this session and didn’t come out as clear as it should ... is that as you lower your income tax rate it makes your state more attractive to businesses that might not consider your state for expansion or relocate here in the first place.

When you lower that rate and you experience the strong growth that comes with lower income tax rates, then you grow the pie of revenue that you see coming into your state and that does help you provide more money for education, for roads and bridges, for public safety. It raises the salaries of our families and our employees.

I’m unsure Fallin’s argument “got lost” in the last legislative session, but my point here is not to overly criticize the governor. Many of her fellow Republicans here share her views. They control state government because the people elected them.

So I’m going to take Fallin at her word and accept that she really believes in her taxation philosophy and truly thinks cutting the income tax will lead to prosperity here.
But if we cut the income tax and reduce government spending, cutting education and core services even more, how soon will the “strong growth . . . grow the pie of revenue”? Will it be one year? Two years? Five years? What specific businesses will relocate or expand here after an income tax cut? Fallin’s prediction, well intentioned as it might be, is numberless.

Even if we concede Fallin’s overall argument is correct—and I absolutely do not—it still lacks the certainty and stability that has to go into creating a state budget.

The overall question becomes, then, if it’s even possible to have an honest debate about government funding, including funding for public education, given the views of the state’s top political leader. If a future income-tax cut is argued next year once again on a prediction without known variables, how does the debate about school funding even proceed?

How can Miller and OK Policy crunch the numbers when there are no numbers to crunch?

The Oklahoma Tax Cut Massacre

Still image from The Texas Chainsaw Massacre movie

I’m going to write more about the GOP tax-cut meltdown now that the Oklahoma Legislature has adjourned, but I’ll offer some initial, brief observations this holiday weekend.

In her February state of the state speech, Gov. Mary Fallin announced a plan to cut the state income tax from the top rate of 5.25 percent to 3.5 percent, which would then be followed by further cuts. This plan was a centerpiece of her speech. It made national headlines, and the overall Oklahoma tax-cut effort was eventually vaunted by The Wall Street Journal.

Immediately after Fallin’s speech, a tax cut at that point seemed almost certain. Fallin is a popular Republican governor in an extremely conservative state. Republicans control state government. It seemed then like only a sudden financial crisis could have derailed a cut.

Her announcement was followed by a series of counter proposals from Republicans that included the so-called “Laffer” plan that would have cut the income tax immediately to 2.25 percent to a last-minute plan that would cut the tax to 4.8 percent. The 4.8 percent plan, which included a trigger for a further cut, seemed like it would pass, but at the very end of the session House leaders refused to bring it to a vote.

The House then offered up what can only be described as a last-ditch, desperate, ill-conceived plan to cut taxes based solely on future triggers tied to revenue growth, but it was dismissed by the Senate and Fallin had little enthusiasm for it.

In the end, there was no tax cut, a fairly remarkable non-occurrence given all the tax-cut hyperbole and the Republican stranglehold on state government.

The conventional wisdom, expressed here, is that the GOP met resistance with reforming the overall tax code by various vested interests, and obviously there’s some truth to that, but that only gives Republicans a lame excuse. Republicans had to know going in that changing the state's tax structure would create tension. Is there more to the story?

Here are three other points that won’t get made in the corporate media here:

  • This will seem obvious to some people, but perhaps state Republicans here simply don’t have the intellectual apparatus to create and implement sound tax policy. Certainly, Fallin, House Speaker Kris Steele and other Republican leaders are intelligent enough people. That’s not my point. But the people behind the scenes drawing up the specifics of any tax-cut plan have to be able to calculate its immediate and long-term effects. When the 4.8 percent plan was presented, Republican leaders seemed befuddled when it became apparent that many Oklahomans would actually pay more in taxes because of the loss of the personal exemption. Didn’t anyone do the math before the plan was proposed? As I wrote in the last days of the session, Fallin and other GOP leaders should at the very least know how any tax-cut plan they proposed would affect them personally. If they don’t know, then the plan is simply not vetted.

  • The tax-cut meltdown shows it’s obvious that Republicans are not unified at the state Capitol. That’s probably saying it too nicely. Fiscal conservatives, such as Steele, who are concerned about core services and education, are up against starve-the-beast social conservatives and the staffers at the Oklahoma Council of Public Affairs (OCPA), who agitate for a more slash and burn policy when it comes to government spending. It was OCPA that pushed the draconian Laffer plan, which was supposedly based on the ideas of Arthur Laffer, a former economic advisor to the late President Ronal Reagan. In the end, responsible Republicans knew that the Laffer plan was ludicrous, disingenuous and would have damaged the state for years to come. Watch for more clashes between the OCPA and Republicans next year, especially if President Barack Obama is reelected and the Obama-hysteria continues here.

  • Did Republican leaders intentionally sabotage the tax cut plans because they know state agencies and education have faced severe budget cuts since 2008? I’m just throwing that out there. Here’s how it might have worked: Once the Republican leadership realized how much any tax cut would hurt schools and other core services, they decided against a cut, especially when declining natural gas tax revenues became an issue. To save face after all the initial hyperbole, they proposed last-minute plans that would almost certainly die on the vine. The counter to this, obviously, is my first point about a lack of an intellectual apparatus. Take your pick.

That’s my first take on the issue. There were other factors, of course, that prevented any tax cut this year, including the steady opposition of the Oklahoma Policy Institute, which deserves credit for leading the way and crunching the numbers. In terms of the state’s two main think tanks, OK Policy really handed it to the better-funded OCPA this time around. But there’s next year, and, if state revenues continue to rise, Republicans will surely try to cut the income tax again to primarily benefit the state’s wealthy people.

TABOR Makes An Oklahoma Comeback?

Image of state capitol

The new Oklahoma House tax-cut plan may already be dead as I post this, but it seems modeled, in some respects, on the philosophy underlying the Taxpayer Bill of Rights (TABOR) movement.

Under the TABOR philosophy, state government spending should be capped each year under a formula based on inflation and population growth. Additional revenue is then given back to taxpayers.

Under the new House tax-cut plan, triggers are put into place to lower the top state income tax of 5.25 percent over several years if revenues grow by 5 percent in a previous year. In essence, taxpayers also get the additional revenue.

Both plans place draconian limits on government spending and ensure it’s virtually impossible or at least extremely difficult to change it. They also tie the hands of future legislators to respond to pressing needs in infrastructure, education and health services.

A 2006 push to make TABOR a state constitutional amendment failed here in the courtroom, and its implementation in Colorado became a disaster that voters had to later rectify so core government services could continue.

The initial House tax cutting plan, endorsed by Gov. Mary Fallin, would have cut the top income tax rate from 5.25 to 4.8 percent next year. It also would have triggered another tax cut in 2015 if revenues grew by 5 percent the previous year.

But because the plan eliminated the $1,000 personal exemption, many middle-class Oklahomans would have paid more in taxes. In other words, the tax cut was really a tax increase for many people.

As of Wednesday, House leaders had decided against hearing the Fallin-endorsed tax bill, and put forward the tax-cut trigger bill, which was not met with any special enthusiasm by either Fallin or the Senate. Legislators have until Friday to finish their work. Both plans are presumably still under some form of consideration as I post this.

Beyond the comparison of the new House plan to TABOR, here are some criticisms of the current tax-cut political debacle at the Oklahoma Legislature:

(1) It is extremely irresponsible and borderline dishonest to propose major tax cuts and tax-code adjustments in the last few days of a legislative session. This doesn’t give the number crunchers enough time to determine the fiscal impact on individuals and state government funding nor does it allow for extended public debate and media coverage.

(2) The GOP controls state government. If Republicans want to cut taxes, then they should cut taxes and specifically cite how much state government spending will be cut in the process. I’m adamantly opposed to any tax cuts right now, but at least this would be an honest and transparent approach. It would allow people to plan their lives. For example, if teachers know they’re going to lose their jobs, then at least they can take action. The frenzied, disarrayed GOP approach to the tax-cut issue in the final days of this session lacks basic integrity and human decency.

(3) Let me repeat: Most government agencies and education have faced drastic cuts in their funding in recent years because of the economic downturn that began in 2008. Teachers and other workers have lost their jobs. Cutting taxes immediately after a relatively slight rise in revenues is as irresponsible as TABOR. The recently announced standstill budget for next year, which the House has now voted down, is another classic example of ideology trumping sound fiscal policy.

The Oklahoma Legislature needs to adjourn without acting on any tax-cut proposal this year. At this point, that’s the most responsible action or non-action it can take.

Syndicate content