My first take on the state income tax cut agreement between Gov. Mary Fallin and some Republican legislators is this: It’s an awful plan that primarily benefits the wealthy as it reduces available money for education and other core state services. Legislators should reject it.
In addition, it appears some Oklahomans will actually pay more in taxes under the plan. How does a supposed vaunted tax cut actually raise taxes? It’s a contradiction the GOP and probably many rich Oklahomans don’t want anyone to point out too loudly.
The plan would reduce the top income tax rate from 5.25 to 4.8 percent. It eliminates the personal $1,000 exemption for taxpayers making more than $35,000 a year ($70,000 for a couple) and their dependents and includes a trigger to drop the top rate to 4.5 percent in 2015 if revenues increase by 5 percent the previous year.
Again, this is my first take on the agreement, but the numbers don’t add up. It’s simple math on a calculator. By losing the personal exemption some people are going to pay more because the actual tax “cut” doesn’t make up for it. How can you even call this a tax cut and get away with it?
As the Oklahoma Policy Institute pointed out in one of its first responses to the proposal, “Larger families with incomes between $70,000 and $100,000 who itemize their deductions are likely to fare worst.”
Taxpayers will also no longer be able to deduct their state income tax as an itemized deduction, which will also help to raise taxes on some people.
Also, those people with incomes between $12,000 and $14,000 would actually see their tax liability increase, according to a media report.
So essentially people with incomes of $150,000 to $499,000, according to an Oklahoma Tax Commission analysis, would benefit the most from the tax cut while everyone else gets a small decrease or small to large increase in what they pay in state taxes.
It’s class warfare waged by Republicans on behalf of wealthy people. What else is new, right?
The proposal would mean the state will have $32.7 million less in available revenue for fiscal year 2013 and $102 million less the following fiscal year. This comes after years of state budget cuts, but the Republicans claim the tax plan protects core services.
Obviously, the plan is less drastic than Fallin’s initial call for a drop in the top tax rate to 3.5 percent, but it’s still irresponsible. It’s based on the proposition that businesses will flock to Oklahoma because of its reduced state income tax rate. That’s not going to happen, and everyone knows it.
(Good news: The Oklahoma Supreme Court has ruled the proposed personhood ballot initiative is unconstitutional. This follows the demise of a personhood bill in the Oklahoma Legislature. The anti-abortion personhood movement is based on giving civil rights to a fertilized egg in a woman’s womb.)
Oklahoma Gov. Mary Fallin has finally conceded her income tax cut plan won’t make it through the legislature this year, but she’s still pushing for a smaller cut and automatic triggers for additional cuts in the future.
According to media reports, Fallin, a Republican, essentially blamed the Oklahoma Legislature for not having the “appetite” for a large cut in the income tax this year. Fallin’s plan, passed by the Senate, would have dropped the top income tax rate from 5.25 percent to 3.5 percent next year.
Here’s what Fallin said about the issue, as reported by the Associated Press:
There doesn't seem to be the appetite in the state Legislature to make a huge, significant cut in the income tax, but I'm still pushing to get an income tax reduction that will be meaningful, that will help the people of Oklahoma and certainly help our business owners.
One question is whether Republican legislative leaders are giving Fallin political cover for overreaching in her tax cut plan, which she announced in her state-of-the-state speech, or if she truly believes a major tax cut is still feasible now even after the recent drop in natural gas production taxes.
Another tax cut plan that has been considered would lower the top rate from 5.25 percent to 4.75 percent, a plan that will now apparently get more attention from the GOP-dominated legislature.
Fallin also said she wanted the legislature to pass “growth triggers,” along with any tax cut, that would automatically institute tax cuts when state revenue growth exceeds a certain level. The Oklahoma Policy Institute, a think tank in Tulsa, calls such triggers bad government policy.
According to the OK Policy blog:
Deciding tomorrow’s tax cuts today would tie the hands of future legislators, make them less accountable, and limit their ability to make the best decisions based on the circumstances that they face. Lawmakers shouldn’t use triggers to sneak in bad policy through the back door.
While Fallin’s concession is good news on one level for state agencies and educational institutions, it still leaves the door open for a tax cut with automatic triggers this legislative session. By supposedly “rejecting” Fallin’s plan the GOP can now pose as fiscally responsible, which simply isn’t the case. This is not good news.
Any type of cut seems reckless at this point given the decline of natural gas prices, which means less gross production tax revenue for the state. If the price of natural gas drops below $2.10 per 1,000 cubic feet, the tax rate automatically drops and that means even less state revenue. It’s difficult to see how natural gas prices will rise this year, and what if next winter is as mild as the recent winter?
Another concern for legislators should be the fortunes of Oklahoma City’s Chesapeake Energy Corp., which has raised operating cash recently in light of lower natural gas prices, according to media reports. Is the company vulnerable to a hostile takeover? Could it downsize? Could it go bankrupt? These questions are getting discussed in the media right now.
Any major disruption in the company’s operations—downsizing, layoffs, relocation, etc.—could severely harm the local economy and lead to steep drops in overall state revenue.
The sensible thing to do would be to drop all tax cut plans for this session. There’s no pressing need for a tax cut, which will primarily benefit the wealthiest Oklahomans. It’s hard to believe some Republican leaders even believe that a tax cut will somehow spur enough business development to make up for the lost revenue.
If Republicans want to cut government, then they should try to do it openly and not just create the conditions for a budget disaster.
“In a minute there is time/For decisions and revisions which a minute will reverse.”—From T.S. Eliot’s “The Love Song of J. Alfred Prufrock”
Is the Oklahoma Senate’s decision to pass Gov. Mary Fallin’s major income tax cut proposal reckless or is it just part of ongoing political negotiations?
On Wednesday, the Senate voted to approve Fallin’s proposal, which would lower the top income tax rate from 5.25 to 3.5 percent next year and then lower the rate by one-quarter of a percent each year revenue growth is 5 percent or more.
The Oklahoma Policy Institute, a think tank based in Tulsa, estimates Fallin’s tax-cut plan would cost $1 billion in the first year, a staggering amount of money in a state with a current budget of $6.5 billion. It’s unclear how the cut would be paid for, but some legislative leaders apparently are saying the major cut isn’t going to happen this year.
According to a NewsOK story:
. . . Republican legislative leaders say they're still negotiating several tax cut plans and have acknowledged it's unlikely that a cut of more than 1 percent can be accomplished this year.
That’s some good news, although the prudent action would be to hold off on any tax cut this year. Even 1 percent or even a quarter of that amount is way too much. Declining natural gas gross production tax revenues and recent major budget cuts at state agencies and in education should mean the tax-cut talk should be put on hold for this year. Oklahoma still has not returned to pre-recession revenues. Let’s revisit the tax-cut issue when that “return” happens.
Senate Republicans might just be giving respect to the governor, but their action could also be labeled as at least questionable if not reckless. Why pass this particular plan if it’s not going to make it through the legislative gauntlet? Why didn’t Fallin, pictured right, release Republican legislative leaders of any obligation to her plan given the downturn in natural gas tax revenues and issue a statement about it? Why play with fire?
Or is the point to show how financially responsible the Republicans have become when they pass a smaller cut? Will it make it more politically feasible for them even though a smaller cut would likely end up requiring more budget cuts?
I’m not necessarily arguing there are ulterior motives here in passing this particular plan beyond legislative protocol, but anyone who has followed the Oklahoma Legislature through the years knows the political shenanigans never cease until adjournment.
When it comes to the lege, I often think of these two lines in T.S. Eliot’s poem “The Love Song of J. Alfred Prufrock,” “In a minute there is time/For decisions and revisions which a minute will reverse.”
So the major question is simply this: Does this plan have any chance of reaching Fallin’s desk? Maybe I’m just too much of a skeptic, but I wouldn’t rule it completely out at this juncture.
There’s growing evidence in favor of NOT implementing any type of tax cut this year as I’ve noted here and here. OK Policy makes the comprehensive case against a tax cut here. This is an important issue that has the potential to negatively impact the quality of life here through even more cuts in education and state services.