Budget & Tax

Why the long faces? Revenue ‘shortfall’ presents a valuable opportunity

February 23, 2015

Amid the lamentations and gnashing of teeth surrounding the news of Oklahoma’s $611 million budget “shortfall,” OCPA officials believe it is important to provide a decidedly different point of view.

“Oklahoma policymakers often talk about the need to ‘right-size’ state government. The obvious implication is that they mean to make it smaller. But in reality, it keeps getting bigger. According to the state’s Comprehensive Annual Financial Report, in fiscal year 2014 state-government spending hit another record high. Before you can address a challenge, you have to honestly identify the problem: in this case, the state has a spending problem. This budget cycle presents a perfect opportunity for conservative policymakers to demonstrate that they can deliver better services at a better price.”

— Michael Carnuccio, OCPA president

“I can’t help but notice that the size of the current budget shortfalls in Oklahoma and Kansas appear similar. But there is one crucial difference: Kansans saw their families’ bank accounts increase by the amount of the state budget shortfall. By contrast, Oklahoma families just watched their elected officials continue to overspend on government.

As the former state budget director in Kansas, I can tell you that the Kansas shortfall is actually closer to $400 million (because of a couple of statutory quirks that causes the state to overstate expenditures and revenues since 2003). But even if the dollar amounts were equal, the two are light years apart in the ‘cause’ of the shortfall and the effect on the average citizen of the two states. A working Kansas resident has seen his or her individual income tax rate cut from 6.45% to 4.9% in the last two years, with another cut to 4.6% effective on January 1, 2015. Small-business income and other pass-through income is already not being taxed at all.

Contrast this with Oklahoma. What do Oklahomans have to show for their shortfall? They’re not seeing the increased take-home pay that Kansans are seeing. Oklahoma’s much-discussed individual income tax cut doesn’t go in to effect until 2016—and even so it merely reduces the rate to 5%. This still lags Kansas, which will have another rate cut kicking in at the same time as Oklahoma’s, bringing Kansans’ top rate to 3.9%.”

— Steve Anderson, OCPA research fellow

“It is unfortunate that some see declines in state revenue only in terms of its negative impact on the state government. What about the taxpayers who are economically suffering (hence the tax shortfall)—the laid-off employees in the energy industry, the waitresses at the diner that fed them, or the salesman at the car dealership that sold them new vehicles? What about their families? Not only would closing the budget gap with higher taxes add insult to their injury, but would further increase the dependency of Oklahoma’s economy on the public sector and crowd out the private sector. In the long run, that would mean lower incomes and fewer jobs for all Oklahomans.”

— Scott Moody, OCPA research fellow

“Revenue downturns are not simply a problem—they’re also a valuable opportunity. Agency leaders need to emulate their colleagues in private enterprise. Business leaders, when facing a drop in revenue, know they must cut costs …without reducing customer service. They seize the chance to make difficult decisions that prosperity encourages you to avoid. Effective leaders know that there is no better time to release unproductive employees, cut underperforming programs, and seek creative ways to provide good service at lower cost. Private vendors, for example, may provide as good or better service for less money. At the very least, the possibility of competition will improve the performance of state agencies. Political leaders can assist agency leaders by ensuring they have the authority to make the hard decisions that will improve agency efficiency.”

— Andrew Spiropoulos, OCPA’s Milton Friedman Distinguished Fellow

“To their great credit, our friends on the Left have been calling on citizens to have an honest conversation about what we expect from government and how we plan to pay for it. Given that 9 in 10 Oklahoma voters think state government wastes “a lot” or “some” of the money we pay in taxes (51 percent say “a lot”), and given that state government is involved in many areas best left to families and churches and other mediating institutions of civil society, many of us believe it’s time to right-size government. That means making it smaller, not larger. We should pay for this smaller government by phasing out the income tax over 20 years and replacing it with nothing.”

— Brandon Dutcher, OCPA senior vice president