Taxes

Tax Cut Forces Regroup

 Image of Oklahoma State Capitol

The state’s tax cut forces are already posturing and signifying their intentions several months away from next year’s legislative session.

Last week, Oklahoma Gov. Mary Fallin, who leads a Republican-dominated state government, told the Wall Street Journal that her party would again push for an income tax reduction, a proposal that failed to pass the legislature last session.

According to StateImpact, Fallin would like to see at least a cut from 5.25 percent to 4.8 percent in the income tax. Such a cut, if not offset by raising other taxes or increasing other revenues, would devastate the budgets of state agencies and educational institutions, which have faced severe cuts in recent years.

It’s important to note that tax revenues remain significantly below what they were before the 2008 economic downturn. It’s simply unconscionable and irresponsible to cut taxes under these conditions unless there are replacement revenues or a specific plan that spells out the ensuing budget cuts. If the GOP wants to continue to layoff teachers and eliminate teaching positions in public schools to give rich people tax cuts, then that’s its prerogative as the party in power, but it shouldn’t hide behind the flimsy argument that a cut will attract more businesses to Oklahoma, making up for any lost revenue.

I know we’re several months away from the renewed tax-cut effort, but reporters and editors for local corporate media outlets should begin discussing how to cover the tax-cut plans that will undoubtedly emerge next session. Here are three areas to consider:

  • How much will it cost? Last session, it was often difficult to determine the cost of the individual tax-cut plans. One problem, as I mentioned, was the impossible-to-determine idea that a cut was going to generate new tax revenue. The corporate media can duly report this GOP myth, but it needs to press for specific numbers from the tax cutters. Obviously, the Oklahoma Policy Institute (OK Policy), a Tulsa-based think tank, has proven itself as a reliable source for tax information, and it needs to be consistently cited in the process, but Fallin, her surrogates and legislative leaders need to be pressed for the exact loss in revenues a tax cut would generate. If they cannot produce a reliable figure—accepted as accurate by OK Policy and others—then the plan should be considered irresponsible.

  • What will get cut? If the tax cut is not offset by other revenues, such as eliminating certain tax credits or raising sales taxes, and there will be budget cuts, then those cuts need to be specifically outlined by the tax plan. The corporate media should demand Fallin and legislative leaders present this information. It’s simply irresponsible not to have a budget-cutting plan that corresponds with any given tax-cut plan. I’m not in favor of more budget cuts, of course, but I also know the Republicans control the government. If the Republicans are going to partially pay for tax cuts by, say, laying off educators and other state workers, then they should be held accountable to it before the plan gets a vote.

  • How much will Fallin get? Last session, I think I was the only voice that called on Fallin to calculate and announce just how much she would receive from a tax cut plan. The tax-cut plans floated last year favored the wealthiest Oklahomans. Perhaps, the best way reporters and editors could explain this is on personal terms. How much would Fallin make under the tax-cut? How much would a teacher making $40,000 or a fast-food worker making $20,000 annually make? This is important. Will GOP leaders like Fallin give themselves a huge tax cut at the expense of school children and the impoverished as morally reprehensible as that might seem or should seem to some people? Perhaps. But if they do so, they need to do so openly. It seems like such an easy question to ask. ”Governor Fallin, how much less will you pay in state taxes under the plan?” But does anyone in the so-called mainstream press corps here have the guts to ask the question?

NewsOK.com recently published a story in which some state leaders called for more transparency and openness in the state’s budgeting process. Transparency is necessary in order for democracy to thrive, and, in terms of the Oklahoma budget process, the tax cut plan will be center stage next session. Nothing will probably be more critical next legislative session than knowing exactly the impact of any proposed income tax cut. That’s where state government transparency should begin in 2013.

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.

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