Last year, the legislature tackled Oklahoma’s unfunded pension issues by dealing with the teachers, state employees and judiciary pensions. This year they will try to improve the stability of the firefighter and law enforcement systems.
“The goal is to put all our systems on a sustainable path, which would be a notable accomplishment for public workers and taxpayers alike. We have negotiated with representatives from both the firefighter and law enforcement organizations. I think we have come to an agreement that is fair to our public safety employees and fair to taxpayers,” McDaniel, R-Oklahoma City, said. “Employees and employers will both pay a little more into the system in order to ensure the pension plans are financially strong over the long run.”
Make no mistake- Oklahoma’s unfunded pensions are a problem. Oklahoma Council of Public Affair’s Steve Anderson wrote an article back in October 2010 entitled, “The Coming Explosion of Oklahoma’s Pension Bomb.” http://www.ocpathink.org/articles/274.%20%20Anderson which correctly pointed out the unfunded pension issue was one that could bankrupt Oklahoma government in the next few years if it wasn’t dealt with.
In a March 2011 article (http://www.ocpathink.org/articles/953), the OCPA pointed out Moodys(the bond rating company) was using the state government’s unfunded pensions as a factor in calculating Oklahoma’s credit rating- and not in a good way They pointed out that Oklahoma state government’s ‘debt load’ was substantially higher as a percent of GDP than neighboring states and the national average.
We got to this point because past Oklahoma legislatures were reckless and irresponsible when they promised benefits to teachers and state employees and then didn’t fund them.
Currently, there is a lot of talk about phasing out Oklahoma’s state income tax. Several Republican legislators are planning to introduce bills in the next session to phase out the state income tax over the next decade. They claim eliminating the state income tax would help recruit jobs and industry to Oklahoma, but before elimination of the state income tax happens, it should be carefully vetted.
Oklahoma’s individual state income tax is 5.5%. It represents about 20% of state government revenue- second only to state sales tax. Phasing out this revenue stream and letting Oklahomans keep more of their own money is a good thing and would result in economical growth in the state. But it’s not the phasing out of the state income tax that worries me; it’s how the legislature will deal with the possible loss of revenue. Will they hide taxes and fees or will they cut government in direct proportion to the loss of revenue. The second action is not a normal characteristic of government.
I understand supply side economics and believe in the Laffer curve. It is likely the growth projections are feasible, but it’s still a risk to state government (and taxpayers) to eliminate the state income tax without a fail safe plan. If projections fell short, what would state government do?
A more prudent plan would be one that reduces state government spending in direct proportion to the amount of revenue lost by the phasing out of the state income tax. Until that is done leave the state income tax intact.