| August 5, 2011
An idea whose time has come?
More than a decade ago some of us made the argument that Oklahoma should get rid of its individual income tax and replace it with nothing. The response to this idea was not sufficiently robust to impact public policy.
Then about seven years ago, economist Stephen Moore argued in an OCPA publication that “Oklahoma faces not just a budget deficit today, but a more serious growth deficit. The state isn’t growing fast enough in jobs, capital, new businesses, or population to create the tax revenue base to sustain government spending.” Mr. Moore, now an editorial board member of The Wall Street Journal, continued: “Given Oklahoma’s growth deficit, now would be a particularly opportune time to cut income tax rates and accelerate the state’s economic recovery. The income tax should be cut in half, and a 10-year plan should be put into effect to eliminate the income tax altogether by dedicating some portion of the natural growth in tax revenues to phasing down the tax rate to zero.” Again, this policy prescription did not gain traction and was not implemented.
Then in March of this year, economist Peter Ferrara suggested in Forbes that any state foolish enough to have an income tax should get rid of it and replace it with nothing. He said if a state simply limits spending growth to the rate of population plus inflation, “and devotes the savings each year to reducing income tax rates, then enough savings would be generated along with new revenues from the resulting economic growth to phase out the state’s income tax completely in less than 10 years. That would apply to the state individual income tax, the state’s corporate income tax, and the state’s capital gains tax, the latter two usually not raising a lot of money. … With the burden of state income taxes lifted, economic growth in the states would soar, new jobs would be created, and wages and incomes would rise.”
Victor Hugo once said, “You cannot resist an idea whose time has come.” We’ve seen that to be true in Oklahoma with respect to another idea -- once unthinkable, now unstoppable. Will income-tax elimination be next? We shall see.