Income-tax debate ratchets up in Oklahoma
BY JANET PEARSON Associate Editor
Sunday, January 29, 2012
1/29/12 at 2:40 AM
Is the personal income tax all that's keeping Oklahoma from economic nirvana? That seems to be the view of state leaders intent on abolishing that tax.
But is it really that simple?
The battle lines are drawn in the income-tax debate gearing up, and it's hard to imagine the two sides could be any farther apart. "We're going to have some very lively discussions," predicted Senate President Pro Tem Brian Bingman.
A group of 23 House members is pushing legislation to phase out the personal income tax over 10 years. In a press release touting their plan, they claim it would result in the lowest overall tax burden for any state in the continental U.S.
But they had much more than that to say.
"The personal income tax is still our biggest disincentive in Oklahoma to work and produce at a higher level, to relocate a company to Oklahoma or start up a new one here, to create jobs, to pursue a better job, and to save and invest," said Rep. Tom Newell, R-Seminole.
Money saved by taxpayers through this tax cut "will give Oklahomans greater economic freedom, and our improved business climate and improved job market here in Oklahoma will give them a better shot at achieving the American dream," asserted Rep. Charles Ortega, R-Altus.
"By making Oklahoma a no-income-tax state, we will have put together a winning recipe for business investment, new job opportunities and economic growth in Oklahoma," said Rep. David Derby, R-Owasso.
"In the past decade states without a personal income tax outpaced Oklahoma in economic growth and job creation," declared Rep. David Brumbaugh, R-Broken Arrow, who also claimed those states have experienced twice the state and local revenue growth Oklahoma has.
Is everyone convinced now that all that's holding Oklahoma back is our income tax? If you've got your doubts, keep reading.
The Oklahoma Policy Institute, which quickly moved to the forefront of the save-the-income-tax movement, apparently has come across a different body of research than that tapped by lawmakers. The institute has produced a number of issue briefs on the subject.
The $2 billion-plus that the individual income tax brings in each year accounts for about a third of the state budget and "is the single largest source of support for education, health care, transportation, public safety and other necessities," the institute noted in the November policy brief, "The Case for the Income Tax," by Gene Perry.
Would businesses flock to an income-tax-free Oklahoma? Perry found a national survey of business leaders tho ranked tax rates "last among factors relevant to location decisions."
"Far more important were access to skilled labor, nearby markets, public safety and transportation infrastructure - most of which require public investments made possible by the income tax."
The institute also points to public comments from business leaders who have tried to convey to state leaders that the income tax isn't the economic hobgoblin they deem it to be. At a legislative task force hearing last fall, Wes Stucky, Ardmore chamber president with a long history in economic development, told lawmakers that in 24 years of interviewing company executives, "not once in all those years did a company that rejected Ardmore base its decisions on taxes."
What about the claim that other income-tax-free states are outdoing Oklahoma economically? Nine states have no personal income tax, according to the institute: Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming. The institute concluded that "there is no evidence that lack of an income tax sets them apart (from Oklahoma) in any significant way." (It's obvious, though, that those states have some other attributes that set them apart from Oklahoma, such as mountains and coastlines, among other things.)
Oklahoma's unemployment rate last September, for example, was better than six of those states. And Oklahoma's per-capita personal income growth between 2000-2010 also was better than six of those states.
Texas, often touted as an economic paradise, has some worse economic woes than Oklahoma: higher unemployment; dismal job growth; the nation's highest share of workers earning the minimum wage; the nation's highest rate of uninsured; and the eighth highest poverty rate in the nation.
Would the absence of an income tax really help attract the best and the brightest from other states? Migration among states year in and year out typically is very low, according to OPI, and tends to be driven more by cheaper housing than by lower taxes. Florida, for example, has seen fluctuations in migration over the past decade that coincide with variations in housing prices; tax policy during that period remained unchanged.
As for the argument that an income-tax cut would put more money in people's pockets, that is disingenuous at best. It's inconceivable that $2 billion could be shaved from the state budget without revenue offsets having to come from elsewhere. Even other (more rational) supporters of cutting the income tax acknowledge offsets would be necessary.
Coming up roses
At a speech last week in Tulsa, Gov. Mary Fallin painted a relatively rosy picture of Oklahoma's economic future. She told the State Chamber gathering that Oklahoma's economy is growing and it's being noticed throughout the country.
Since the beginning of last year, she told the group, the state's workforce has increased by a net 38,400 jobs, the second-fastest rate of job growth in the nation. Manufacturing jobs are growing 2 1/2 times faster in Oklahoma than in Texas, and five times faster than the nation as a whole, she said.
Hmmm. Maybe Oklahoma's income tax isn't such a huge obstacle to economic growth after all.
Our tax structure certainly isn't perfect - it could be broader and fairer, among other things - but it might be just about as good as any in the nation. As the institute noted, Oklahoma's mix of revenue sources - primarily sales taxes, income taxes and energy and motor-vehicle taxes - helps "guard against volatility and cyclical deficits" and "reduces the likelihood that all (will) fall simultaneously."
It's certainly a healthy exercise to review the tax structure with the aim toward improving it. But if some cabal can come up with a way to shave $2 billion from the state budget without significantly hurting somebody or something, they deserve a lot more than political jobs in Oklahoma. They deserve a Nobel Prize in economics.
Original Print Headline: The income-tax debate
Janet Pearson 918-581-8328
Motorists line up to drop off their income tax returns on Denver outside the downtown post office. Tulsa World file