The Edmond Sun

January 11, 2013

The case against another income tax cut

Mickey Hepner
By the Numbers

EDMOND — In the next three weeks Gov. Mary Fallin will release her proposed FY 2014 state budget — a budget that likely will renew her call for legislators to pass a significant cut in Oklahoma’s individual income tax. While cutting the state’s income tax likely will be very popular with key legislators, the more interesting policy question is whether enacting further income tax cuts is the best way to allocate limited state revenues.

Every penny that the Legislature allocates to fund state income tax cuts is one less penny that they can use to fund other budget needs. So, more income tax cuts necessarily mean less spending for education, less spending for roads, less spending for prisons and less money for other types of tax cuts. So when considering new tax cuts, legislators need to consider not just whether the cuts would generate benefits, but whether they will generate the most benefits of all the other options. When one examines the issue through this lens, there are a number of reasons why cutting the state’s income tax should not be the Legislature’s highest priority.

One reason for this is that Oklahoma’s tax burden already is well below the national average. According to data compiled by the U.S. Census Bureau, in 2010 (the last year for which full data is available) Oklahoma’s state and local tax burden (state and local tax collections divided by state personal income) is 8.53 percent, which ranks as the 47th highest out of 50 states — only Alaska, Tennessee and South Dakota rank lower. Oklahoma’s individual income tax is not comparatively high either. According to the same Census Bureau data, Oklahomans paid only 1.67 percent of their personal income in individual income taxes in 2010 — a tax burden that ranks 35th out of the 50 states. Hence, our state individual income tax is clearly not abnormally high compared to the other states.

With this comparatively low level of taxes paid by Oklahomans, we have a comparatively low level of government services received by Oklahomans as well. According to a different set of Census Bureau data, Oklahoma ranks 47th nationally in per-pupil K-12 education expenditures. Even when one adjusts for Oklahoma’s comparatively low income, Oklahoma ranks 33rd out of the 50 states. Investing less in our children’s education is not the ideal way to develop the workforce for a dynamic 21st century economy.

And it’s not just education that suffers from insufficient funding. Oklahoma’s roads and bridges routinely rank among the nation’s worst. Oklahomans’ health, including mental health, routinely ranks among the nation’s poorest. And perhaps the most fitting example of what happens when state leaders fail to make sufficient investments for the future — we have a state Capitol building that is literally crumbling apart.

More state income tax cuts make it more difficult for policymakers to address these other needs — needs that to me are much more pressing, much more concerning, much more troublesome.

In the past some tax cut supporters have dismissed similar claims by arguing that further cuts in the state’s income tax will stimulate faster economic growth, enabling the state to spend even more money on education, health care, roads and prisons. However, the data from states that lack an individual income tax do not support these claims. Since 2000 Oklahoma’s per-capita personal income has outpaced seven of the nine states that lack a personal income tax (source: U.S. Census Bureau). Furthermore, Oklahoma’s median household income — arguably the most relevant economic statistic regarding the well-being of the typical household — has grown faster than the median household income in all nine states that lack a personal income tax. In short, these two key economic indicators (which are confirmed by decades of economic research on the subject) show that cutting state income taxes is not a panacea to prosperity.

The path to prosperity is paved with investments for the future. Let’s hope that this legislative session our leaders recognize that our state’s biggest obstacle in our path is that we haven’t invested enough.

 

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.