Ineffective, misguided, a step in the wrong direction — all ways to describe the Oklahoma Legislature’s tax reform efforts during the 2014 legislative session. Instead of addressing our state’s most pressing needs, our state’s leaders instead chose at best to ignore, at worst exacerbate, them.
The two most notable tax reform “achievements” heralded by legislators from the 2014 Legislature were the passage of an additional reduction in the state income tax, and an expansion of a horizontal tax break for drilling. It is certainly doubtful though, that either of these two actions deserves to be labeled an achievement.
With the small income tax, the Legislature took another step in a 20-year campaign to reduce the state’s income tax burden. The economic evidence indicates though, that the tax cut isn’t needed. According to the conservative Tax Foundation, Oklahoma’s tax burden already ranks among the nation’s lowest (39th out of 50). Furthermore, Oklahoma’s individual income tax burden is also below the national average (36th out of 50). However, Oklahoma’s state and local sales tax burden is much more concerning given that it is among the nation’s highest (14th out of 50).
Keep in mind that while the Legislature was passing a tax cut that will further reduce state revenue, Oklahoma’s per-pupil common education funding continues to rank 48th out of 50 states. Furthermore, according to the nonpartisan Center on Budget and Policy Priorities, Oklahoma’s inflation-adjusted per-pupil funding for higher ed has declined by 21.3 percent since FY2008. Also, staffing at Oklahoma’s correctional facilities are in crisis mode due to insufficient funding to offer competitive salaries.
In short, even though Oklahoma has a number of pressing funding needs in education, health care, roads and prisons, the Legislature chose instead to cut our already-low income tax.
In another disappointing development, the Legislature essentially accepted a proposal by the CEOs of some of Oklahoma’s leading energy industry to reform the temporary horizontal drilling tax break. That break, which was set to expire this year, established a temporary 1 percent tax on the production from horizontal drilling wells — a rate that is down from the normal rate of 7 percent. This tax break was enacted many years ago to stimulate horizontal drilling wells, what was then a more-risky endeavor. Given that horizontal drilling is a much more common technique today, the infant-industry type argument clearly has less merit now.
Since the tax break was set to expire, the local energy executives proposed setting a 2 percent rate for the first 36 months for the production from all Oklahoma wells — both traditional and horizontal wells. Essentially, they were proposing a significant tax break for the energy industry.
While, one cannot fault the industry leaders for proposing such an idea, one can fault the Legislature for not driving a harder bargain. After all, the energy executives have an obligation to serve the interests of their shareholders and maximize their profits. Legislators though, have an obligation to serve the interest of all Oklahomans. Ideally, they would have countered with a plan to set the tax rate at 5 percent — below the current 7 percent level that firms would have paid next year, yet above the 2 percent rate the executives offered. Such a deal, would have provided some benefit to the state’s important energy sector, while driving a better deal for taxpayers.
Given the state’s political climate, and the makeup of the Legislature, it is not surprising our state’s leaders chose to pass new tax cuts. It is however, still disappointing. Because of their actions our schools will have less funding than they could have had to support our teachers and students. Because of their actions we will have less money to enhance the health and well-being of Oklahoma’s neediest citizens. Because of their actions we will have less money to repair the roads and highways that are essential for commerce. Because of their actions we will have less money the correctional officers need that help keep us safe.
Because of the actions of the 2014 Legislature, Oklahoma’s most pressing needs will once again go unmet.
MICKEY HEPNER is the dean of the College of Business Administration at the University of Central Oklahoma. Hepner serves on the Executive Committee of the Board of Directors for The Oklahoma Academy.