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.