Taxes

(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.

(Be sure to watch the highlights of an April 5th forum on the proposed income tax cut plans in the above video.)

The reasons for Republicans to drop plans for any type of income tax cut this legislative session continue to mount.

Parents and educators in the Tulsa area, for example, have begun an effort to convince state leaders to restore school funding to 2007-2008 levels because of recent devastating budget cuts and not implement a new tax cut. The Tulsa School District, for example, is in the process of eliminating 150 positions because of budget cuts.

A rally has been scheduled for 6:30 p.m. Thursday at the field house at Edison Preparatory School, 2906 E. 41st St. in Tulsa.

Is the GOP, including Gov. May Fallin, paying attention to the political ramifications of this grassroots movement opposed to a new income tax cut?

Meanwhile, Democratic leader state Sen. Sean Burrage of Claremore and Democratic Senate Caucus leader Tom Ivester of Sayre have made powerful statements opposing tax cuts.

Here’s what Burrage had to say in a media release:

Oklahoma does not have enough revenues to even begin to meet critical needs in education, health, public safety, transportation and other services our citizens depend upon. House Bill 3038 will further erode those resources. We’re 48th in the nation in the health of our citizens. If this becomes law, we’ll soon be 50th. We’re close to last when it comes to teacher pay and per pupil spending. We’ll soon be dead last in those categories, too. Supporters claim we’re going to see businesses and people flock to Oklahoma if we end the income tax. When they see Oklahoma’s schools, roads and bridges, and our public health all ranked last in the nation, this will be the last place in the nation they’ll want to come.

Here’s what Ivester had to say in the same media release:

The State Capitol building is crumbling around us. We don’t know how we’re going to pay for the DHS reforms that are supposed to prevent more Oklahoma children from dying in state custody. We have yet to restore funding cuts in education and other critical areas in the wake of the national recession. No one promoting the elimination of one-third of the state’s revenue is addressing these issues, except with vague claims that this will bring in more jobs, more taxpayers and that will take care of it. These are empty political promises that will leave thousands of Oklahomans without vital services and many more with a lower quality of life.

Again, do Republicans stand to lose politically if they go ahead with a tax cut given these rational arguments?

Let me add another reason, though it may be a bit of a wildcard. The Occupy Wall Street Movement has begun to focus on exorbitant student loan debt of college students. Some politicians have floated ideas that would forgive some, if not all of this debt. (I favor this effort.) The forgiveness most likely would need to be accompanied by reasonable tuition rates, which could pressure state governments, including Oklahoma, to provide more financial support for universities and colleges.

How can Oklahoma do so with drastic cuts in state revenues?

Of course, the opposition cited in this post to an income tax cut in Oklahoma this year represents a tiny fraction of recent developments or ideas. The Oklahoma Policy Institute has the state’s most comprehensive information of why an income tax cut would hurt the state. Different plans for some type of income tax cut, including the eventual elimination of the income tax entirely, are now under consideration in the legislature.