'Fiscal cliff' could push Oklahomans' taxes up
BY WAYNE GREENE World Senior Writer & RANDY KREHBIEL World Staff Writer
Friday, November 16, 2012
11/16/12 at 5:07 AM
State taxes could rise $23.8 million next year unless national leaders find a way to steer away from the "fiscal cliff," a spokeswoman for the Oklahoma Tax Commission said Thursday.
In subsequent years, the pending Dec. 31 expiration of Bush administration cuts in federal taxes would result in a state tax hike of $46 million a year, said commission spokeswoman Paula Ross.
Several Bush administration tax cuts end Dec. 31, the same day that some taxes from the Affordable Care Act begin and a massive cut in federal spending, or sequestration, hits many non-entitlement programs.
The combined effect has raised concerns among economists that it could renew the U.S. recession and drive up unemployment rates. The Tax Commission calculations do not take into consideration the effects of such a slowdown.
Because many Oklahoma taxes - especially personal and corporate income taxes - are tied to federal tax returns, an increase in federal taxes due can drive up Oklahoma tax revenues passively.
Preliminary figures on state revenue for fiscal year 2014 will be given to the state equalization board on Dec. 20, and will be based on whatever state and federal tax laws are in effect at the time. Final revenue figures will be delivered to the board in February.
"Our office will be able to do budget projections with and without revenue from potential expiration of the Bush rates," said Secretary of Finance and Revenue Preston Doerflinger. "It won't change the overall multibillion-dollar state budget much either way, but we'll still pay close attention and prepare accordingly.
"The one certainty in all this is that Oklahoma's economy and revenue picture remain bright as long as Washington avoids the cliff," Doerflinger said. "Keeping the Bush rates largely intact has fundamental economic benefits that need to be considered, but that's obviously a Washington conversation now with a lot of other factors in play."
Unless President Obama and Congressional leaders can come to an agreement to avoid the situation, Tax Foundation data show federal spending would be cut roughly 9 percent while federal tax revenue would rise about 8 percent.
A Thursday report from the Pew Center on the States found, however, the impact would vary from state to state.
"The interesting thing we found in this report was that the changes to federal tax and spending policy will affect all states, but that the variability of impacts on states really depends on their budget structure and economies," said Anne Stauffer, director of Pew's Fiscal Federalism Initiative.
"Hawaii depends on defense spending for about 15 percent of its budget, while Oregon is about 1 percent," Stauffer said.
Oklahoma, in most cases, is somewhere in the middle. It gets 6.3 percent of state revenues from federal grants, which would take a big hit under sequestration. That's in line with the national average of 6.6 percent.
Federal spending for procurement accounts for 5.5 percent of state gross domestic product - again about average - of which about 80 percent is military related.
Military spending is the one area in which Oklahoma would be hit noticeably harder than the nation as a whole.
About 1 percent of the Oklahoma workforce is employed by the federal government, according to Pew.
Pew said it did not try to determine the cumulative or secondary affects of falling off the cliff, but cited a Congressional Budget Office report predicting a one-half percent decline in national gross domestic product and unemployment increase of about 1 percentage point if the combination of tax increases and spending cuts go into effect.
Ross said some, but not all changes in the Bush tax cuts would result in higher taxes for Oklahomans.
The changes that would affect state tax revenues include:
Original Print Headline: 'Fiscal cliff' could push state taxes up
- Personal exemptions and itemized deductions that would go away for high- income taxpayers;
- A reduction in the child tax credit from $1,000 per child to $500 per child;
- Tighter eligibility for the earned income tax credit, which subsidizes child-care costs of working poor people;
- Restoration of the so-called marriage penalty, which allow some low- or middle-income two-earner couples to owe more than they would if they were single and earning the same income.
Wayne Greene 918-581-8308 email@example.com Randy Krehbiel 918-581-8365