| April 12, 2012

Oklahoma House Republicans Press Income-Tax Phaseout, Hundreds of Millions of Dollars in Reduced Spending

On March 12, a contingent of nine Republican members of the Oklahoma House of Representatives discussed their advocacy of legislation aiming to cut state income taxes “immediately” and ultimately to end the unpopular levy, detailing what they say are areas where spending reductions could take place sooner, rather than later, to get the process started.

There are a couple of essential operational assumptions for the group, leaders of a cadre of 31 House members who have co-sponsored a Laffer-style plan to phase out Oklahoma’s personal income tax.

First, based on a dynamic analysis of the anticipated impact of the lower taxes, the group assumes that total personal income in the state would grow by 20 percent as the decade-long phaseout takes place.

Second, government tax revenue would, they project, increase to $8.2 billion in appropriated dollars, compared to the current $6.6 billion, as the state economy grows due to resources remaining in private hands.

With those assumptions and projections in place, the group gave reporters a listing of up to $853 million in unnecessary or wasteful spending of taxpayer dollars, saying that was enough spending reduction to cover the anticipated $525 million needed to jumpstart the process.

Advocates of the income tax phaseout said they had included many suggestions from OCPA, which recently detailed more than $2 billion in potential savings that could be enacted over a three-year period (see sidebar below).

Participating in a briefing for state Capitol reporters were GOP Reps. Leslie Osborn of Tuttle, Charles Ortega of Altus, Jason Murphey of Guthrie, Elise Hall of Oklahoma City, Corey Holland of Marlow, Tom Newell of Seminole, David Brumbaugh of Broken Arrow, Dennis Johnson of Duncan, and David Derby of Owasso.

Rep. Osborn led the press conference. She is the sponsor of House Bill 3038, which has 31 co-authors and aims to end the state income tax incrementally, with a first-phase leap to a 2.25 percent rate, compared to the present 5.25 percent rate.

Touting personal income tax reduction as a dramatic weapon for economic development, Osborn said she and co-authors “took title off” the bill because “we wanted it clearly understood this was a work in progress. This is a serious effort. We listened to concerns expressed”—by senior advocates, retirees, and military veterans.

At the end of the session with reporters, the group circulated the list of possibly $853 million worth of spending where, she said, “reductions can be made … without affecting core services.”

Legislative leaders, Governor Mary Fallin, and advocates of the Laffer-style plan have identified “core services” as education, transportation, public schools, and a safety net for the truly needy.

State Rep. Murphey said Republicans aim to cut income taxes “immediately,” and meaningfully, to start the phaseout. The plan includes, he said, “spending reductions up front that are strategic in nature.”

Murphey, who is earning favorable reviews and fiscal results for the consolidation and efficiency measures he has already shepherded to passage, said that “as chairman of the Government Modernization Committee, I consider this process a godsend. Nothing could be more disconcerting than enacting these efficiencies and reductions in spending and then having government agencies fill back in spending, in good years.”

Murphey has said savings from efforts already enacted to modernize government have exceeded expectations, and will continue to do so. These have included changes in payroll, accounting, infrastructure, information technology, central services, and other reforms. He asserted, “There is a lot of room to ‘grow’ the effect of those reforms.”

Rep. Newell said “core services” do not include “things like golf courses and rodeos. … We are laying out a very do-able list that leaves core services in place.”

Saying he and colleagues are fighting FUD (fear, uncertainty, doubt) as part of this plan, Rep. Brumbaugh thanked state Rep. David Dank of Oklahoma City and state Sen. Mike Mazzei of Tulsa for their work, in the past year, identifying tax credits and carve-outs that can be ended or reformed to jumpstart the tax-cutting process.

He said it is “very important that we move forward with their reforms.”

Declaring it is “an exciting time to be in Oklahoma,” Rep. Johnson said tax reduction is intended “to improve the business climate. It’s not a mystery what we’re doing here.” He acknowledged, “We are willing, happy, to work with others to adjust the plan and particulars, with the end result of reducing taxes on Oklahomans.

“This is about economic progress for our state, and creation of more jobs.”

CapitolBeatOK asked Rep. Osborn why this approach to economic development had not been tried before now. She responded, “Aspects of this have been attempted before. I had a conversation with Governor Frank Keating last week.” She said Keating remembered business leaders told him that to grow, Oklahoma needed both Right to Work and elimination of the state personal income tax. She observed that Keating “got one of those done but not the other.” Rep. Newell pointed out that for the first time in Oklahoma history, “we have a Republican governor, House, and Senate.”

One reporter asked if the state should, instead of cutting taxes, provide pay increases for state government workers. Osborn replied the state could provide “better pay for state workers, with fewer state workers.” Murphey added he was in active discussion with leaders of the Oklahoma Public Employees Association to move the state to a “market-based system” for public employee pay.

Rep. Brumbaugh stressed the proposal was a “progressive plan, to lower taxes on all Oklahomans.” Government revenue would, the advocates of HB 3038 contend, continue to grow—to an estimated $8.2 billion in appropriated funds, larger in 10 years than its current base of around $6.6 billion. However, Brumbaugh said, under the income tax phaseout, “Oklahomans would have more in their pockets.”

Responding to questions about her proposal to end tax credits that benefit “working families in Oklahoma,” Osborn reiterated her object was to end state income taxation on lower-income Oklahomans. She said, “Remember, the rate cut in the first year is to 2.25 percent.”

She noted that after phaseout, there would be no personal income taxes imposed on any Oklahomans at any income level. She contended, “The plan we are advancing puts $2,000 more a year into the pockets of the average family of four.”

She added that polling conducted in 2011 found that 70 percent of Oklahomans said, given a choice, they would choose lower taxes and accept fewer state services in the trade-off.

Patrick B. McGuigan (M.A. in history, Oklahoma State University) is editor of CapitolBeatOK and a member of the board of directors of the Society of Professional Journalists (SPJ) in Oklahoma.

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