Unkindest cuts
BY JANET PEARSON Associate Editor
Sunday, May 06, 2012
5/06/12 at 2:45 AM
Maybe it's a little harsh to compare Oklahoma's leaders to the emperor Nero who, legend has it, carelessly fiddled while Rome burned. But there's no denying they haven't done much to tackle some of the state's biggest problems in recent years, opting instead to make things worse by whittling away at state revenue year in and year at through income tax cuts.
That's been a main objective again in this legislative session, along with hacking away at dozens of tax breaks. Meanwhile, educators are blue in the face from hollering and parents are pulling their hair out over the crummy state of education in the state.
And what, you might ask, have other state leaders been doing in these tough times about these tough times? Oh, things like - gasp! - increasing income tax rates, raising sales tax rates, broadening sales taxes to cover more goods and services, and raising other taxes and fees.
After reviewing the just-released report, "Protecting the Safety Net in Tough Times: Lessons from the States," a casual observer is left to wonder why some state leaders and their constituents will take such bold steps as raising taxes when faced with an economic crisis, while others do exactly the opposite. Are Oklahomans that much different from people in say, Connecticut or Illinois?
'Bold and creative'
The report, put together by policy analysts at the National Center for Children in Poverty, a research center based at Columbia University's Mailman School of Public Health, found quite a few surprising steps enacted this fiscal year by a number of states in response to the Great Recession of the past few years.
The analysis determined that state tax collections "fell by the highest percentage on record in the course of the year ending in June 2009." Inflation-adjusted general fund revenues "fell an extraordinary 17 percent from fiscal years 2008 to 2010."
States embarked on major spending cuts in response to this unprecedent budget crisis, but that's not all that happened. Collectively, a significant number of states "enacted a historically large collective tax increase in calendar year 2009, raising personal income tax levies by the largest dollar amout on record." Sales taxes, corporate income taxes and other taxes and fees also were hiked in some states.
Connecticut, for example, raised marginal personal income tax rates and expects to bring in about $2 billion more in personal income tax collections in fiscal 2012 over fiscal 2010.
Connecticut also raised a corporate tax surcharge from 10 percent to 20 percent for this tax year and next. And, state leaders also hiked the general sales tax rate across the board from 6 to 6.35 percent and to 7 percent for some luxury items.
That's not all. Connecticut also adopted a new Internet sales tax and extended it to services that previously were exempted, and also enacted or increased numerous other taxes.
The Constitution State surely must hold the modern-day record for bold tax moves. But its leaders are not alone.
Illinois took the brave step of enacting a temporary four-year increase in its marginal personal income tax rate from 3 percent to 5 percent in fiscal 2011. (Interestingly, Oklahoma leaders have been looking at decreasing the personal income tax rate from a little over 5 percent to maybe 3 percent.)
Illinois also raised the corporate income tax rate from 4.8 percent to 7 percent for four years. Thanks to all the increases combined, the state will see revenues rise by an estimated $7 billion in fiscal 2012 compared to the prior year. And, Illinois also adopted a measure to collect sales taxes on online retailers that have a physical presence in the state.
New York several years ago adopted a three-year income tax surcharge on individuals earning more than $200,000 which expired in 2011, but the surcharge was extended for those earning more than $2 million.
California voters will decide in November whether to expand the sales tax to professional services and other services, and the Golden State also has increased enforcement of sales and use tax collections on online and out-of-state retailers.
Maryland, New York, Vermont, California, Hawaii and Connecticut also raised smaller but still-significant sums through selective tax and fee increases on such goods and services as alcohol, tobacco, utilities, health care, insurance, utilities, motor fuel and vehicles.
Did any Oklahoma activity catch the researchers' eyes? Well, there was this: "Colorado, Connecticut, Kansas, Oklahoma and Washington all enacted measures in fiscal year 2012 to consolidate state agencies with the goal of gaining efficiencies and reducing costs."
Not a bad idea, but so far, agency consolidation hasn't exactly made us well.
What have we learned?
So what are the lessons of the states when it comes to protecting core services in difficult times? It's not fair to insist that Oklahoma be like Connecticut or Illinois, of course. All states have differences in their populations, tax bases, economies and so on. What's politically viable elsewhere might not be acceptable here. Any kind of tax increase - even a limited one on something like alcohol, motor fuels or online sales - probably won't fly in Oklahoma at the moment.
But is there another lesson here besides the obvious benefits of more revenue? How about this: "As a general rule, states with a diverse tax revenue structure that includes a progressive individual income tax are better equipped to weather the fiscal problems caused by recessions. ... In general, the progressive individual income tax is a more resilient source of revenue during economic downturns ..."
The proof is the experience of those states that have no income tax. "Independent analysts have found that the fiscal crises in Florida and Nevada were exacerbated by the absence of an individual income tax in these states."
These policy analysts are not the first to come to such conclusions. But no matter how often these observations are repeated, they still seem to go ignored.
Odd though it may sound, the paralysis of our Legislature when it comes to tackling major issues just might work in our favor. There was intense fervor for eliminating tax credits and other incentives when the legislative session convened in February, but lawmakers to date have done almost nothing on that front. Same for the popular notion of consolidating agencies.
Now it's looking like they'll freeze up when it comes to making major tax cuts. Or at least we can hope.
Janet Pearson 918-581-8328
janet.pearson@tulsaworld.com
