Law & Principles

Stitt announces vetoes, calls for ‘real inflation relief’

May 26, 2022

Ray Carter

A March report from Bloomberg Economics concluded that inflation will force the average U.S. household to spend an extra $5,200 this year, or $433 per month, compared to the prices paid last year for the same consumption basket.

In response, Oklahoma legislative leaders announced they will mail $75 checks to individual taxpayers in December on a one-time-only basis. Otherwise, lawmakers did not pass any broad-based, pro-economic-growth tax cuts this year.

Gov. Kevin Stitt says the state can do better.

“Families need real relief right now,” Stitt said. “That’s what I intend to deliver for them.”

The governor announced he is vetoing the check bill and called on lawmakers to reconvene in special session on June 13 to instead cut the state income-tax rate by another quarter-point and repeal the 4.5-percent sales tax on groceries. Under Stitt’s plan, the state income-tax rate will decline to 4.5 percent.

Stitt said those changes will save the average family $453 a year and make Oklahoma more attractive for investment and job creation.

“I know Oklahomans are with me,” Stitt said. “Oklahomans want real relief now. They don’t want political gimmicks.”

Stitt noted inflation has surged to 8.3 percent, driving up the cost of numerous staples of life and reducing Oklahomans’ quality of life.

But the only actual tax cut approved by the Legislature so far this year is a repeal of a 1.25-percent sales tax on automobile purchases, which Stitt noted helps only Oklahomans who buy a car, not the broad public, and said he will veto that bill as well.

Stitt said the funds freed up by vetoing the $75-check legislation and the car-tax bill will free up enough funds to cover much of the cost of the income-tax cut and grocery-tax repeal.

Stitt also said he will line-item veto two minor provisions from the general-appropriation bill that funds state government, and otherwise allow that bill to become law without his signature.

When legislative leaders announced they had reached a budget agreement between the House and Senate chambers, House Speaker Charles McCall, R-Atoka, declared the plan “helps families fight inflation and positions all Oklahomans for future prosperity.”

House Bill 4474, which provides a one-time check of $75 per adult filer, was the key provision touted by legislative leaders as an anti-inflation measure.

But experts have warned the check plan will have the opposite effect.

Jared Walczak, vice president of state projects for the Tax Foundation, recently noted that inflation, currently at the highest rate seen in four decades, came about because the federal government “has flooded the economy with trillions of dollars that are chasing after a relatively unchanged package of goods and services.”

When people have an artificially higher amount of money and the supply of goods and services stays the same, the price of goods is quickly bid up, Walczak noted. He warned that the Oklahoma Legislature’s plan to mail checks to citizens would have the same impact.

“When the federal government pours additional dollars into the economy, that’s inflationary,” Walczak wrote. “When states do it, that’s also inflationary. Ironically, even as the extra money helps defray some of those higher grocery and gas bills, it further exacerbates the inflation it is intended to relieve.”

He wrote that Oklahoma lawmakers “would be far better off eschewing gimmicky, ill-targeted rebate checks and instead investing in tax reforms that grow Oklahoma’s economy.”

Walczak’s views echo those of other experts in prior instances where politicians promoted tax rebates rather than reducing tax rates.

In 2008, Brian M. Riedl, a senior fellow with the Manhattan Institute, noted tax rebates do not benefit economic growth because “every dollar that government rebates ‘inject’ into the economy must first be taxed or borrowed out of the economy.”

“Simply put, low tax rates encourage new wealth creation,” Riedl wrote. “Tax rebates merely redistribute existing wealth.”

Stitt noted the $75 checks will have even less benefit to Oklahomans than advertised, because the checks will be subject to federal taxation, “so you don’t even get to keep the full amount.”

“Instead, Oklahomans will be forced to send about $19 right back to President Biden in Washington, D.C., instead of spent in Oklahoma,” Stitt said. “That’s $56 in your pocket. Fifty-six dollars. That’s not even enough to fill up your gas tank right now. That’s not real relief. It’s a slap in the face to hardworking Oklahomans, and it’s a political gimmick in an election year. I never expected Republicans to take a page out of Joe Biden’s liberal playbook and waste $181 million sending government checks out.”

Stitt’s vetoes and tax-cut plan received strong support from conservative groups and business leaders.

“While the Oklahoma economy is stronger than the national economy, the Biden-Harris administration’s inflation policies are killing opportunity,” said Americans for Prosperity state director John Tidwell. “Oklahoma families are having a hard time making ends meet and one-time, California-style rebates are not the answer. People deserve lasting relief in the form of permanent income-tax cuts for individuals and families.”

“The governor’s veto of House Bill 4474 is an acknowledgement that this is the wrong policy at the wrong time,” said Chad Warmington, president and chief executive officer of the State Chamber. “It doesn’t address the root causes of inflation plaguing the economy and is identical to the federal policies that created overheated demand and supply shortages. What is needed in Oklahoma is meaningful, pro-growth tax policies that stimulate capital investment and business expansion and address the supply crisis.”

Warmington called on legislators to use the special session “to enact bills that would squarely address the real problem facing our economy and utilize the state’s surplus revenue to give everyday Oklahomans long-term tax relief.”

“Thanks to Governor Stitt’s leadership, the legislature has a second chance to get proven, conservative tax reforms done,” said Americans for Tax Reform president Grover Norquist. “Oklahomans are struggling with inflation and the best relief is to let them keep more of their hard-earned dollars.”

“Oklahomans and their families don’t want their elected officials to rubber-stamp flawed legislation so they (politicians) have a talking point during the next election—they want real relief from the problems they are facing at the gas pump, in the grocery store, or as they try to pay rent or purchase their first homes,” said Heritage Action executive director Jessica Anderson.

“In this Biden-inflicted economic crisis, families desperately need tax relief. But mimicking Obama’s cash for clunkers program or Pelosi’s COVID cash giveaway is not the best way to help Oklahomans,” said Conservative Political Action Coalition chairman Matt Schlapp. “We support Governor Kevin Stitt’s fiscal discipline and his pro-growth policy agenda, which will help families weather the storm and keep the state on track for future growth.”

Stitt noted the state will have the largest savings fund in history, totaling more than $2 billion, which allows policymakers to cut taxes and still be prepared for future downturns. He said those savings have been built up because he stressed the need to restrain state spending since winning office.

“We had to first get that savings account set up before we could do this,” Stitt said. “But right now, this is the time. You have to cut taxes whenever revenue is going up. That does two things. It chokes off the growth of government later, and it also returns it to the people. I ultimately believe that we need smaller government. I want to give the taxes back to the taxpayers and let them choose how to spend their own money.”