Weekly Opinion/Editorial

CUT THE STATE INCOME TAX RATE!

by Steve Fair

The Oklahoma state income tax rates will drop on January 1, 2012 from 5.5% to 5.25% unless the state legislature intervenes. The automatic triggering of the reduction is due to state revenue being up at least four (4) percent over last year.

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Some have questioned the timing of reducing the state income tax rate since Oklahoma state government is in a serious budget crunch. The tax cuts are expected to let Oklahoma taxpayers keep $61 million dollars in their pockets the first year, thereby depriving government of the same amount.

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The money the tax cuts would generate could be a help in plugging some budgetary holes according to David Blatt, director of the Oklahoma Policy Institute, a policy think tank. Blatt believes the tax cuts should be delayed. “These projections are showing that there is modest revenue growth as the economy recovers,” Blatt said. “We continue to remain well below pre-downturn levels and the recovery is being hampered by policy decisions made several years ago, both regarding tax cuts and spending obligations.”

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Scott Moody, an economist at the Oklahoma Council of Public Affairs said the timing for enacting the income tax rate “couldn't be more fortunate.” “The great thing about the way the trigger was designed is that you only get the tax rate reduction when revenue is growing fairly robustly,” he said. “So it's not like that (lost state) revenue will cause a decrease in government spending; it only reduces the increase.”

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The automatic income tax reductions got a shot in the arm last week when incoming Governor Mary Fallin, Speaker of the House designate Kris Steele, (R-Shawnee), and Speaker Pro-Tempore designate Brian Bingman, (R-Sapulpa) said they supported them. Fallin will be a member of the newly organized Board of Equalization.

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"Letting Oklahoma families and small businesses keep more of their hard-earned money is the right thing to do and a good way to get our economy moving in the right direction," Fallin said. "Cutting the income tax rate will make Oklahoma more competitive on a national stage and is a step in the right direction as we work to make our state a better place to do business."
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"Broad-based tax relief is the most efficient and fair way to spur economic growth because it helps all Oklahomans," said Steele. "Cutting our income tax rate will make Oklahoma a more attractive place to do business and a positive, national role model on economic policy."
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"The tax cuts are designed to stimulate economic growth and create private sector jobs, both of which are a priority," stated Bingman. "It is important that we remain committed to tax relief and allow the additional dollars in the private sector to create wealth in Oklahoma."

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Almost every Oklahoman would be impacted by the reduction. Oklahoma’s income tax rate kicks in at a low level- $8,700 for single filers, $15,000 for married couples-so virtually everyone pays the state 5.5% of their income.

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Nine States- Alaska, Florida, Nevada, South Dakota, Texas, Washington and Wyoming have no state income tax. Seven of the nine states grew faster than the national average in the past decade. The other two, South Dakota and New Hampshire, had the fastest growth in their regions, the Midwest and New England. The fastest growing state in the country is Texas. Its population grew twenty one (21) percent in the past decade, from nearly 21 million to more than 25 million.

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Steve Beebe, a Duncan CPA, and a member of the board of OCPA, wrote in 2001: “There are two concepts about taxation I have found to be true (1) You can’t take a lot of tax money from someone that doesn’t have any money, and (2) You can’t try to squeeze too much from the wealthy, high-income earners, or businesses because they will move to a more tax-desirable state.”

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Three things about this issue: First, allowing Oklahomans to keep more of their income and reducing the size of state government in the process is a positive move in the right direction. Cutting government’s “allowance” forces them to make some hard decisions. Second, if Oklahoma ever expects to be competitive in attracting business and industry, we have to reduce the personal income tax rate. Third, Oklahoma government needs to be right sized and modernized. The best opportunity to do it is in a down budget year.

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Fallin has said, “The best way to address the budget shortfall is to get very serious about government modernization and making government smaller, smarter and more efficient. “It's very important we do everything we can to look at eliminating waste or duplication in state government and continue to right-size government to make it more efficient and effective.”

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Fallin and the incoming legislature leaders are saying the right things. Let’s hope they have the courage to follow up and make the tough decisions that will move the state forward.