Lipstick on a pig? Not quite. This week state Finance Secretary Preston Doerflinger did his best to put a positive spin on what was, at best, a mediocre state revenue report this week. However, positive spin does not alter the fact that the state economy continues its post-summer stagnation.
Secretary Doerflinger reported that while state General Revenue Fund collections in December came in 4.3 percent below last year’s collections (mainly due to continued weakness in gross production tax revenue) state sales tax collections remained strong — indicating that the Oklahoma economy remains strong. As evidence of continued strong sales tax collections, the press release touts the fact that December’s sales tax collections were the second-highest of the six-month fiscal year so far.
Usually though, December sales tax collections are the highest of the year due to the Christmas shopping season. In other words, if the economy remained as strong as suggested, one would expect to see December sales tax collections to be the highest, not just the second-highest.
Furthermore, while sales tax collections did exceed the prior year’s collections, the amount of growth declined in December compared to November. Through the first five months of the fiscal year, sales tax collections were running 8.3 percent above the prior year’s collections. In December, though, the year-over-year growth in sales tax collections dipped to 6.3 percent. A similar pattern of slower growth is playing out with income tax collections as well. Through the first five months of the fiscal year income tax collections exceeded the prior year by 8.8 percent. In December though, it was only 5.7 percent. In short, the growth rate in collections for the state’s two most important revenue streams — the income and sales tax — slowed in December.
This is consistent with what my own calculations have been showing for months now — that the Oklahoma economy peaked during the end of the second quarter, and has stagnated since.
Looking ahead, some serious concerns loom. While the U.S. Congress was able to pass legislation to delay the fiscal cliff and mitigate any economic harm, we should not forget that this Congress is still pursuing a contractionary fiscal policy. Working Oklahomans are just now starting to see smaller paychecks due to the ending of the 2 percentage point payroll tax holiday on Jan. 1. As a result, working families with $50,000 per year of earned income will see a $1,000 tax increase in 2013. With higher taxes paid, families will be spending less resulting in both lower tax collections and lower economic activity. In short, our state economy was already weak and Congress just made it weaker.
Looking back, this stagnation was inevitable. Oklahoma’s economy simply outperformed its fundamentals in the first half of the year. In such situations there are two general outcomes — either the fundamentals improve or economic growth slows. In Oklahoma’s case, the latter explanation rings more true.
Of course, with an unemployment rate 2.5 percentage points below the national average, the Oklahoma economy remains better than most others. But being better than others still doesn’t mean that our economy is robust. If anything, the data tell us that we are stagnant at best.
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.