Oklahomans to Trim Family Budgets If Obama Tax Hikes Enacted

October 1, 2010

Unless Congress acts soon, 2011 will bring with it higher federal taxes as the tax cuts enacted under President George W. Bush expire. Some highlights:

Chart 1 illustrates the average spending by Oklahoma household if the Bush-era tax cuts are extended.

If the Bush-era tax cuts expire, the federal tax bill in FY 2012 will climb by $1,929—to $19,787. This higher federal tax bill will mean Oklahomans will have fewer dollars for all other spending. Chart 2 shows the spending reductions (assuming an across-the-board cut in household spending).

Of course, the expiration of the Bush-era tax cuts—that is to say, the onset of the Obama tax hikes—will mean different things for different people. Let’s consider three examples (each assumes use of the standard deduction):

Rather than asking Oklahomans to further tighten their belts, the federal government should learn how to tighten its own belt.

Methodology

The consumption data are based on the 2008 Consumer Expenditure Survey (CES) published by the U.S. Department of Labor’s Bureau of Labor Statistics. While the CES only publishes data by region, the estimate for Oklahoma was created by allocating the regional data based on Oklahoma’s share of personal income for the southern region. The data were extrapolated to 2012 using the Consumer Price Index forecast from the Congressional Budget Office.

The FY 2012 state and local tax collection was extrapolated from data from the U.S. Department of Commerce’s Census Bureau.

The FY 2012 federal tax collection data are from the Congressional Budget Office. The estimate for federal taxes paid by Oklahomans is based on data from the Tax Foundation:http://www.taxfoundation.org/sites/ocpathink/sr139.pdf

The federal income tax estimates are from the Tax Foundation: http://www.mytaxburden.org

In Chart 1, all expenditures are estimated for FY 2012, which is the first full year under the expired tax cuts.

Calculations do not adjust for any feedback loop between federal and state tax codes.

Economists J. Scott Moody (M.A., George Mason University) and Wendy P. Warcholik (Ph.D., George Mason University) are OCPA research fellows.