Taxes

Dogma, Presumptions Blur Tax Cut Arguments

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The Oklahoman editorial board has attempted to philosophically defend the GOP push for a tax cut this year despite the cut’s future impact on revenue in a state that has faced budget reductions in recent years.

Unlike Gov. Mary Fallin and to an extent House Speaker T.W. Shannon, a Lawton Republican, who mostly engage in sweeping, Republican generalizations when it comes to cutting taxes, a recent commentary in the newspaper actually tried to parse the issue and offer specific counter arguments to those people who oppose an income tax cut right now.

The newspaper should be commended for actually trying to construct a logical argument, but ultimately the overall argument fails because of misguided assumptions, lack of empirical evidence and over reliance on unproven conservative dogma. It would be nice if state leaders, including editorial writers at Oklahoma’s corporate media, could have a rational discussion about taxes, but it can’t happen if we must begin with prevailing conservative presumptions that simply aren’t true.

The editorial, “High-tax states wouldn’t mind an economy like Oklahoma’s” (April 12, 2013), essentially offers counter arguments to the Oklahoma Policy Institute, which has opposed any income tax cut this year, primarily because of its future effect on state revenues and in light of recent budget cuts. The latest proposal under consideration, which came out of the state Senate, would drop the top tax rate from 5.25 percent to 4.95 percent starting in 2015, sunset some tax credits and would cost the state $169 million a year. That proposal is now under negotiation. Fallin and Shannon have pushed for a cut from 5.25 percent to 5 percent starting in 2014. It would cost the state more than $100 million a year.

I have outlined my argument against a tax cut at this time here, but in this post I want to address some of arguments put forth by The Oklahoman in its response to OK Policy and others opposed to a cut.

The commentary, for example argues that a “tax cut is hardly going to make the poor poorer” because the top income tax rate starts at $8,700 for a single filer. This argument supposedly addresses concerns OK Policy has about the relationship between taxes and poverty in the state. But the editorial doesn’t address the fact that any flat cut that doesn’t take into account income brackets is always regressive and shifts the most money to the wealthiest in our society. Also, declining government revenues eventually lead to budget cuts or stagnation, which could mean fewer dollars for safety-net programs that help the poor.

The Oklahoman dismisses OK Policy’s concerns that state workers haven’t had a cost-of-living raise since 2006, arguing in italics that it’s a political sales pitch that comes off like this: “You need to accept less take-home pay so a bureaucrat can get more.” Not every state worker is a bureaucrat, of course, and under Fallin’s original plan 43 percent of Oklahomans wouldn’t even receive a tax cut. I’m unsure the sales pitch for stopping a tax cut right now comes off to a majority of people as described by The Oklahoman. Here’s the real sales pitch: You will receive no tax cut at all or a token amount of money and it will take money away from schools.

Higher education funding from the state has declined in recent years because of lower state revenues, prompting tuition hikes, but that’s okay, according to the commentary, because colleges will raise tuition no matter what. This type of argument dismisses any real discussion of just how much tuition has skyrocketed or of the increasing cost of college, which is saddling many students with crippling debt. It also makes a presumption that colleges will always raise tuition each year, which isn’t necessarily true. A few years ago, for example, many state colleges came together and gave students a year without any increase. It also implies that colleges would have raised tuition that same amount with more state support. I don’t think that’s true, either.

The editorial goes on to argue that “no amount of taxation is ever so great that government boosters won't claim poverty,” which is a misguided, conservative assumption. On the philosophical level, so-called “government boosters” are usually people who want a fairer, progressive tax system. They actually favor tax cuts for the less fortunate in our culture. They want to adequately fund education and safety-net programs and call attention to the growing income inequality between the richest people in our culture and everyone else. Specifically, they recognize the state’s historical and well-documented lack of decent funding for education and the state’s historical and well-documented poverty levels. How can we not “claim poverty” when it stares us in the face?

Many of us opposed to the tax cut have argued that the median cut is only $39 a year, a trivial amount, at the same time it collectively takes a large chunk of money away from overall state revenues. The answer from The Oklahoman is more Republican dogma and presumption. The editorial claims, even though the cut is small the private sector “allocates money far better than any government agency.” That’s certainly true if you’re a billionaire, like the newspaper’s owner, Philip Anschutz, but it’s not so true if you’re working at a minimum wage job and don’t even receive the extra $39 annually. The free market enforces poverty as much as it makes people rich. The newspaper is making an assumption certainly not held by everyone and probably not even a majority of voters in this country.

Finally, the newspaper claims tax collections actually went up after recent tax cuts, but it completely ignores the impact of the Great Recession on Oklahoma and the steep decline in revenues after 2008. I’m trying hard not to engage in hyperbole here, but this claim borders on rewriting not just history but extremely recent history. A strong argument could be and has been made that the tax cuts sent state revenues into a devastating downward spiral once the economy tanked.

Still, I’ll give The Oklahoman some credit here for the attempt to argue ideas and also for its rather subdued approach to the tax-cut proposals presented by lawmakers so far this year. The editorial seems okay with the idea that lawmakers “may favor state spending over tax cuts this year, and consider tax cuts again in future years.” I’m okay with that idea, too.

Searching For A Tax Cut, Any Tax Cut

Image of Mary FallinImage of T.W. Shannon

Gov. Mary Fallin, in what is becoming another desperate search for a tax cut, has dropped her demand for a tax decrease this coming year and says she’s open to proposals that would slash rates in 2015 and in subsequent years.

House Speaker T.W. Shannon, a Lawton Republican, has also joined Fallin in a new show of openness and compromise over a Senate tax cut proposal. Both Shannon and Fallin had previously insisted on a tax cut for 2014.

This is mixed news. While it’s encouraging Fallin and Shannon might be open to a delay in a cut and support some reform of the tax code, including the elimination of unneeded credits, it also begs this question: Why not just wait until next legislative session to cut taxes since the initial decrease wouldn’t go into effect until 2015? Wouldn’t it be more responsible to just wait and see how well the economy is doing next year?

Of course, the real GOP elephant in the living room is that Oklahoma is still recovering from the Great Recession, recent budget cuts have devastated education funding and the tax cuts will primarily benefit only the wealthiest Oklahomans.

Are Republicans at this point just trying to pass a tax cut only for the sake of saying they cut taxes? I think so. Beyond sweeping generalizations—people need more money in their pockets, tax cuts will attract businesses, etc.—Republicans have offered no rational reason for a tax cut at this time, especially given recent budget cuts and pressing infrastructure needs.

Here’s where we stand. The House passed a Fallin-supported bill that would lower the tax rate from 5.25 to 5 percent in 2014 without any offsets. They also killed a Senate proposal that delayed a tax cut until 2015 and also dealt with deductions and credits. When the Senate got the House tax measure, contained in HB 2032, a committee inserted new language in it that would delay a tax cut from 5.25 to 4.95 percent until 2015 and sunset some tax credits.

What has transpired since is the type of Republican infighting that doomed a tax cut last legislative session. At first, Fallin and Shannon insisted on a 2014 tax cut. Now, they’ve backed off the rhetoric, and are indicating they could accept delaying a cut, especially if it’s larger. So it’s back to square one.

As expected, the trashy spectacle of the crumbling state Capitol building has become an important part of the GOP intraparty fight. Sometimes symbols—state Capitol buildings are about as symbolic as you get—are extremely important. Republicans are considering tax cuts in a building that has to be fenced off in places because pieces of it are falling to the ground. Scaffolding is in place to protect people from getting hit from dropping limestone fragments. The building needs major electrical and plumbing work as well. The building is now listed as an endangered historic place by Preservation Oklahoma, Inc.

It could take more than $200 million to repair and renovate the building, but it appears Republicans would rather give big tax breaks to millionaires than fix the house. State Senate President Brian Bingman, a Sapulpa Republican, and Shannon can’t even agree on whether the issue should be studied, much less on an aggressive plan for repairs. A bond issue to repair the building, even supported by the ultra-conservative editorial board of The Oklahoman, was deemed out of the question by House Republicans even before the session began.

It will probably take a major accident and ensuing lawsuit to get the current Republican majority at the Capitol to take action on the building.

Meanwhile, under Fallin’s initial tax cut proposal, 43 percent of Oklahomans wouldn’t even get a tax cut, according to the Oklahoma Policy Institute. The median cut would be just $39 annually. The real breaks go to those with household incomes in the top 1 percent. The plan would reduce revenue by more than $100 million a year. The current Senate plan would reduce revenues even more.

Let’s get back to education, which is just one area of government that has faced decreased state support in recent years. Gene Perry, an analyst with OK Policy, points out that funding for state schools has decreased by $200 million in the last four years and that higher education has seen its state support drop by 26.2 percent in the last five years.

It is fundamentally wrong to reward millionaires with tax breaks while systematically defunding state educational institutions. All of us who live here are going to pay the price for this ideological error.

Will State GOP Infighting Doom Tax Cut Again?

Image of Oklahoma State Capitol

Why can’t GOP legislators simply set aside tax-cut proposals for this session and wait until next year to assess the economy and determine what impact a cut might have on the state budget?

That would be the prudent course of action. It would be responsible governance after years of budget cuts to education in this state. No one is rallying at the Capitol for a tax cut. The tax-cut proposals presented so far only really benefit the wealthiest in our state. The last time I checked, our state’s millionaires, well, were still millionaires and doing all right financially.

What we have now at the Capitol is a repeat of last year when House and Senate members failed to agree on a tax-cut approach. I hope it all falls to pieces like last year and ends in a stalemate, but the more sensible course of action would be for legislators to just agree to delay any cut until the overall national economy fully recovers and get serious about eliminating unneeded tax credits for corporations.

Here’s where we stand: Gov. Mary Fallin’s simple plan, contained in House Bill 2032, to reduce the top income tax rate from 5.25 to 5 percent without offsets has now been recrafted by the Senate Finance Committee. The new proposal would lower the tax rate from 5.25 to 4.95 percent in 2015 and limit the transferability of some tax credits.

It’s not difficult to see the new proposal as a direct retaliation to the House where a committee voted down a previous Senate proposal that also delayed a tax cut and dealt with tax credits and deductions in the state’s tax code. The arguments between the House, Senate and Fallin’s office might well doom any tax-cut proposal. That’s good. But it could also lead to impulsive, last-minute legislating that could harm the state for years to come. That’s not so good.

Much like Fallin’s proposal, the new Senate offering makes little sense. Fallin’s proposal is simply a tax cut for a tax cut’s sake, reducing state revenues by $120 million annually just to proclaim look at us, we’re Republicans, and we cut taxes for rich people. The new Senate proposal begs the question: Why vote on a delayed tax cut when you can just wait until next year and accomplish the same thing?

The Oklahoma Policy Institute, a state think tank, issued a statement about the new Senate plan that included this: “If we set aside a tax cut for now, lawmakers would still be free to approve one next year or to prioritize other investments, depending on the state's situation. It is irresponsible to make tomorrow's decision today.”

I don’t want to denigrate the overall approach to tax reform by state Sen. Mike Mazzei, a Tulsa Republican and chairman of the Senate Finance Committee. I’m opposed to any tax cut right now, but tax-code reform and modernization, if done responsibly and fairly, could add to state revenues and make any tax cut easier to absorb.

The larger issue remains the conservative quest to eliminate the state’s income tax, which has become a holy grail created by ideology not logic. Is it even possible to eliminate the income tax in a small state like Oklahoma without raising regressive sales taxes or other taxes that would only make our impoverished citizens here even poorer?

The state faces many problems, from inadequate education funding to pressing infrastructure needs. The state Capitol building is literally crumbling before our eyes, and there’s no will among the GOP to do anything about it. A small, token tax cut should be placed on hold this session. Let’s deal with our problems first.

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