The Edmond Sun


December 10, 2011

State income tax no simple debate

EDMOND — Just how important is it to the Oklahoma economy for policymakers to eliminate the state’s personal income tax? While some in powerful circles are arguing that such a move is crucial, the economic evidence pretty clearly indicates otherwise despite what a recent report suggests.

Currently, the anti-income tax groups are marshaling their forces to launch a repeal of the state’s personal income tax. In the past few months the Governor’s Task Force on economic development recommended a 10-year phase-out of the personal income tax. Meanwhile, all indications are that a legislative task force on comprehensive tax reform is poised to make a similar recommendation despite the warning of several state economists who were called to testify (including me). Not surprisingly, the conservative Oklahoma Council of Public Affairs recently released a report from a national (conservative) research firm — Arduin, Laffer, and Moore Econometrics — who argue that the Oklahoma economy would “soar if the proposed economic plan were implemented.”

I disagree vigorously.

The reason for my disagreement with the report’s conclusions (along with its premises, logic and methodology too) is more than a difference of opinion about a policy, but a difference in the purpose of policy research. To me, the role of that research should be to inform the policy debate. Therefore, a serious research project would identify and explain all of the benefits and all of the costs of a proposed policy. The OCPA study however, focuses mainly (almost exclusively) on the benefits while ignoring the costs of eliminating the personal income tax. Consequently, some fundamental (perhaps even elementary) concerns go unaddressed.

While my concerns about the study are too numerous to detail in full in a single op-ed, there are three main issues that highlight the study’s problems. First, the authors often compare the economic performance of states with different tax structures and infer that the cause for the difference in performance is due to the difference in tax structure. This assumes that other factors don’t affect both tax rates and performance (this is explicitly assumed in their econometric model). But tax rates and tax burdens are not determined in a vacuum. They are both shaped by a state’s culture, their history and their economic structure — all factors that also influence performance.

For example, the authors make note of the economic performance for the 11 states that have instituted a progressive income tax in the past 50 years. The authors then conclude that, “the results have not been pretty … The introduction of a progressive personal income tax in each state that has implemented it over the past 50 years has been a total failure.” Clearly, the authors are trying to make the case that the progressive income tax was a major reason for the states’ decline.

If we look at those states though we see that a different explanation is more likely. The 11 states include many Rust Belt states, like New Jersey, Ohio, Pennsylvania, Illinois, Michigan, Indiana and West Virginia. In fact, all 11 of the states are from either the north or northeast — regions that have been in decline mainly due to the pressures of globalization that have reduced domestic manufacturing employment. In other words, it’s not the fault of the income tax, but the authors do not even hint that another explanation is more plausible.

Furthermore, the authors often overlook the fact that the Oklahoma economy is already outperforming many of the states that lack a personal income tax. Even under the authors’ preferred statistics, which I would argue are not the most relevant statistics to compare, the Oklahoma economy typically fares in the middle of the no-income tax states. Meanwhile, several of the no-income tax states have performed very poorly in recent years. Clearly, eliminating the personal income tax does not guarantee prosperity.

Finally, the authors ignore the impact of government services on economic development. In the report’s favored measure of economic outlook, the quality of a state’s education system and its workforce are not even a variable considered. In the context of this debate, the omission of education is important because an elimination of the state income tax will almost certainly lead to a dramatic decline in state education spending, thus hampering our state’s educational system even further.

There is a need for serious research on the state’s optimal tax policy. Policymakers need to fully understand the consequences of different policies in order to do what is right for Oklahoma. This report from an out-of-state firm does not help our policymakers or our people.

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.

Text Only
  • 'Too big to fail' equals 'too eager to borrow'

    Four years ago this month, President Barack Obama signed the Dodd-Frank Act into law, promising that the 848-page financial law would “put a stop to taxpayer bailouts once and for all,” he said. But recently, Massachusetts Sen. Elizabeth Warren told a Detroit crowd that “the biggest banks are even bigger than they were when they got too big to fail in 2008.”
    Who’s right?

    July 30, 2014

  • Sheltons travel for better life for family

    Some time around 1865 a mixed-race African American couple, William and Mary Shelton, made their way from Mississippi to east Texas. Nothing is known for certain of their origins in he Magnolia state, or the circumstances under which they began their new lives in Texas.

    July 29, 2014

  • Film critic Turan produces book

    Kenneth Turan, who is the film critic for National Public Radio’s “Morning Edition,” has written a book “Not to be Missed, Fifty-Four Favorites from a Life Time of Film.” His list of movies span the gamut from the beginnings of filmmaking through the present day.
    There are some surprising omissions on his list. While he includes two films, “A Touch of Evil” and Chimes at Midnight” made by Orson Welles, and one, “The Third Man,” that Welles starred in but did not direct. He did not however, include “Citizen Kane,” that was the first movie Welles made, that is  often cited by both film critics and historians as a favorite film.

    July 28, 2014

  • Logan County’s disputed zone

    Watchers of “Star Trek” may recall the episode from the original series entitled, “Day of the Dove.” In this episode, Captain Kirk and his crew are forced by a series of circumstances into a confrontation with the Klingons. The conflict eventually resolves after Kirk realizes that the circumstances have been intentionally designed by an alien force which feeds off negative emotions, especially fear and anger. Kirk and his crew communicate this fact to the Klingons and the conflict subsides. No longer feeding upon confrontation, the alien force is weakened and successfully driven away.

    July 28, 2014

  • Russell leads in Sun poll

    Polling results of an unscientific poll at show that Steve Russell, GOP candidate for the 5th District congressional seat, is in the lead with 57 percent of the vote ahead of the Aug. 26 runoff election. Thirty readers participated in the online poll.

    July 28, 2014

  • Healthier and Wealthier? Not in Oklahoma

    Increased copays, decreased coverage, diminished health care access, reduced provider budgets and increased frustration are all the outcomes of the Legislature’s 2014 health care funding decisions. Unlike some years in the past when a languishing state economy forced legislators into making cuts, the undesirable outcomes this year could easily have been avoided.

    July 26, 2014

  • Medicaid reform a necessity

    Historically, education spending by the state of Oklahoma has been the largest budget item. This is no longer the case. In recent years, the state of Oklahoma spends more on Medicaid (operated by the Oklahoma Health Care Authority) than common education and higher education combined, according to the state’s Comprehensive Annual Financial Report.

    July 25, 2014

  • Remembering lessons from 1974

    This week marks the 40th anniversary of an important milestone in America’s constitutional history. On July 24, 1974, the Supreme Court voted 8-0 to order the Nixon White House to turn over audiotapes that would prove the president and his close aides were guilty of criminal violations. This ruling established with crystal clarity that the executive branch could not hide behind the shield of executive privilege to protect itself from the consequences of illegal behavior. It was a triumph for the continued vitality of our constitutional form of government.

    July 25, 2014

  • RedBlueAmerica: Is parenting being criminalized in America?

    Debra Harrell was arrested recently after the McDonald’s employee let her daughter spend the day playing in a nearby park while she worked her shift. The South Carolina woman says her daughter had a cell phone in case of danger, and critics say that children once were given the independence to spend a few unsupervised hours in a park.
    Is it a crime to parent “free-range” kids? Does Harrell deserve her problems? Joel Mathis and Ben Boychuk, the RedBlueAmerica columnists, debate the issue.

    July 24, 2014

  • Technology that will stimulate journalism’s future is now here

    To say technology has changed the newspaper media industry is understating the obvious. While much discussion focuses on how we read the news, technology is changing the way we report the news. The image of a reporter showing up to a scene with a pen and a pad is iconic but lost to the vestiges of time.
    I am asked frequently about the future of newspapers and, in particular, what does a successful future look like. For journalists, to be successful is to command multiple technologies and share news with readers in new and exciting ways.

    July 23, 2014


The runoff race for the 5th District congressional seat is set for Aug. 26. If the voting were today, which candidate would you support?

Al McAffrey
Tom Guild
     View Results