Will State GOP Infighting Doom Tax Cut Again?

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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.

Okie Tax Cut Squabbles . . . Again

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The only tax-cut proposal left standing this legislative session is one that grants no financial relief for 43 percent of Oklahomans and is heavily weighted to benefit rich people here.

Let’s be clear: Gov. Mary Fallin’s proposal to drop the state’s top income tax rate from 5.25 to 5 percent ignores difficult arguments over what changes are desperately needed in the state’s tax code and is simply a give-away to the wealthy here. Are the rich here even demanding a cut or is Fallin simply pandering? Why eliminate $120 million annually from state revenues? The average tax cut under the proposal is only $39 a year, but the top one percent of income earners get an average tax cut of $1,870.

This is so obviously apparent, the measure containing her bill, House Bill 2032, got stalled in the Senate Finance Committee yesterday, although conceivably it might well be passed by the time this is published. The political stall has to be construed, as well, as a direct retaliation after a House subcommittee killed a Senate bill that proposed lowering the top rate from 5.25 to 4.75 percent but also tackled the politically volatile issue of deductions and tax credits.

In essence, for all its own flaws, the dead Senate tax bill, SB 585, showed its creators had taken time and used a fair amount of energy to assess the state’s current tax code while thinking through the implications of revenue loss. Fallin’s proposal is merely a tax cut for a tax cut’s sake. Arguments that such a cut will lead to corporate relocations here or that it’s just a first step toward eliminating the income tax altogether are more than disingenuous. There’s little empirical evidence showing interstate tax policy affects economic development and the piecemeal erosion of state revenues is hardly sustainable in a state that is known as a place that now defunds education for no reason and has the lowest per-pupil spending rate in the region. I wrote about that issue here.

Senate Finance Committee Chairman Mike Mazzei, a Tulsa Republican, has indicated he wants to collaborate with House members about reforming the tax code before moving forward, but it appears the tension between the House and Senate and Fallin’s office is ongoing. Fallin’s bill is sponsored by House Speaker T.W. Shannon, a Lawton Republican and Senate President Pro Tempore Brian Bingman, a Sapulpa Republican.

Let’s hope we’re witnessing the start of a Republican squabble that will lead to the downfall of Fallin’s bill and any tax cut for this session. This would be a repeat of last year when Republican legislators couldn’t come to an agreement. By all means, have a serious conversation about the tax code and clean it up fairly, but passing a tax cut just to say you’ve passed a tax cut is not right.

Fallin Debris: Simple Tax Cut Approach Masks Reality

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The political calculation behind Gov. Mary Fallin’s proposal to lower the state’s top income tax rate from 5.25 to 5 percent seems simple enough.

The cut is relatively small so its impact on the state budget—a loss of revenue of around $100 million a year—is minimal on one level, and thus it hasn’t produced much pushback from state agency heads and educational leaders. It also doesn’t “pay” for itself through eliminating deductions or credits so no specific groups are protesting the cut based on their special tax statuses.

It’s a small, generic proposal that will allow Republicans to say they have, indeed, used their supermajority to cut taxes and are on a path, albeit slowly, to eliminate the state income tax altogether. Those who oppose the cut, such as myself, can cringe and think, well, it could have been worse.

But two issues muddy this simple assessment: (1) The cut doesn’t really do anything significant with the tax code, except reward the state’s wealthiest citizens with a tax cut. Why, for example, pass such a small cut without a serious overhaul or at least discussion by the governor of unneeded tax credits? Why do anything at all? The millionaires in this state aren’t openly clamoring for a tax cut. (2) The loss of $100 million in revenue a year comes after a period of state budget cuts that have left our educational institutions and agencies like the Department of Corrections woefully underfunded. It will still simply hurt.

The Oklahoma Policy Institute, using calculations from the Institute on Taxation and Economic policy, has shown that 43 percent of Oklahoma households wouldn’t even receive a tax cut under the plan. Meanwhile, the state’s top income earners would receive 25 percent of the overall cut. The overall average is just a $39 cut a year.

Only the top 1 percent of income earners, who would receive an average cut of $1,870, would get much of a break. Tellingly, state budget cuts or stagnation that could affect the other 99 percent of Oklahomans could wipe out any small tax cut. Higher college tuition, for example, would easily wipe out, say, a $4 annual tax cut for students making less than $18,200.

Note the 1 percent and 99 percent dichotomy, which has been used by protesters in recent years to complain about income inequality. Fallin’s tax proposal definitely favors the top 1 percent.

Fallin and members of her party make the argument that tax cuts spur economic development and that Oklahoma has to compete with neighboring states with no income tax or lower income tax rates. But that argument has never been proven empirically, according to the Center on Budget and Policy Priorities, which points out, “interstate differences in tax levels, including differences in personal income taxes, have little if any effect on relative rates of state economic growth.” The state GOP argument is a sweeping generalization that masks the true intent to widen income inequality between the state’s wealthiest citizens and everyone else.

Fallin outlined her proposal in her State of the State speech, and it has been carried forward in House Bill 2032 by House Speaker T.W. Shannon, a Lawton Republican, and Senate President Pro Tempore Brian Bingman, a Sapulpa Republican. The Oklahoma House has passed the bill, and it’s now under consideration in the Senate. Fallin’s plan appears to be gaining momentum, according to media reports.

Another tax cut plan, Senate Bill 585, advanced by Senate Republicans, would cut the top income tax rate to 4.75 percent, but its implementation would be delayed until 2015. It also tinkers with tax credits and deductions that its supporters claim make it revenue neutral, which is disputed by OK Policy.

It’s still possible that the supporters of the two plans, and supporters of even other tax plans or taxation philosophies, could argue themselves into another tax-cut stalemate, which happened last year. I hope that comes true.

The bottom line for both plans, however, is that Republicans want to lower taxes primarily for rich people and pay for it by limiting government spending. Widening income inequality is not sustainable as a GOP political policy as we’ve seen on the national level. State budget cuts, including cuts in education, have already reduced the overall quality of life here. What major corporations, besides oil and gas companies, will want to move here if our schools’ classrooms are horrifically overcrowded, our roads marred with potholes, our historic poverty glaringly apparent with even a cursory glance?

The major symbol of the GOP’s governance since its sweeping, historic victories in recent years remains the crumbling and erosion of the dilapidated state Capitol building, which Republicans refuse to repair. The loss of revenues caused by the tax cut plans offered up this legislative session would sink the state even further into its self-imposed exile from rationality. Watch out for the falling debris.

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