Time for policymakers to cut taxes, spending

November 14, 2011

The future of oil will be shifting to the Americas, says the Institute for Energy Research (IER), as “the shale oil revolution will continue to change the energy landscape.”

According to Harold Hamm, the Oklahoma-based founder and CEO of Continental Resources, the 14th-largest oil company in America, there are 18,000 unfilled jobs in North Dakota that pay $60,000 to $80,000 per year. The North Dakota economy is expanding so fast that the state has a housing shortage. And because it has a budget surplus, it is considering ending income and property taxes.

IER says “shale oil fields could create more than two million new jobs and tens of billions of dollars in new tax receipts in Texas, Oklahoma, Colorado, California, Ohio, Michigan, and Kansas.”

To make sure some of those tax receipts never become tax receipts, now is the time to start phasing out Oklahoma’s individual income tax.

Oklahoma voters want lower taxes and a smaller government which provides fewer services. Unfortunately, as the chart below indicates, the latest (FY-2010) numbers show that Oklahoma government spending is at an all-time high—and there’s reason to believe the FY-2011 and FY-2012 numbers will be higher still. What’s remarkable (and disappointing) is that the FY-2012 budget was crafted when, for the first time in Oklahoma history, Republicans were in control of the entire process.

CAFR All Tme High

State policymakers may object that they shouldn’t be held responsible for some of these expenditures because there are federal funds involved. But that doesn’t wash. After all, they are the ones who pursue and spend this “free” money, fully aware that it’s being borrowed from xenophobic despots who hate us and that, as Mark Steyn puts it, “the government of the United States is broker than any entity has ever been in the history of the planet. Officially, Washington has to return 15,000,000,000,000 dollars just to get back to having nothing at all. And that 15,000,000,000,000 dollars is a very lowball figure that conveniently ignores another $100 trillion in unfunded liabilities that the government, unlike private businesses, is able to keep off the books.”

Moreover, as the economists at Arduin, Laffer & Moore Econometrics remind us, these federal funds “contribute a great deal to the unsustainable growth of state government.” This is precisely what has happened in Oklahoma.

Take Medicaid, for example. Rather than enacting reforms which would slow the growth of government while rescuing people from this humanitarian catastrophe, state policymakers have managed to get more people into the program—even resorting to gimmicks and tax hikes to do so.

Or consider another unsuccessful welfare program—early childhood “education.” Despite warnings from analysts at The Heritage Foundation, the Cato Institute, the Home School Legal Defense Association, and Eagle Forum, state policymakers are pursuing federal “Stimulus” dollars in an effort to get “many more children … from birth to age five” into government programs. In 308 painfully obsequious pages which further erode fiscal federalism (the word “must” is used 164 times, including when Uncle Sugar informs Oklahoma the federal funds “must be used to supplement, not supplant” other spending), state policymakers are asking the Brokest Jurisdiction in History to send us 59,997,988 dollars, presumably to be delivered by rainbow-powered unicorns. Oklahoma acknowledges this will require “minimal” [wink wink] increases in annualized state spending.

And on it goes. Chasing federal dollars spurs higher state spending, as OCPA economists Scott Moody and Wendy Warcholik have shown. Indeed, absent the recent run-up in federal grants to Oklahoma, the state nearly would have been able to eliminate its individual income tax.

In the spring of 2012, state policymakers will hammer out the FY-2013 budget. One hopes they will slow the growth of state government while beginning to phase out the individual income tax. Unless—perish the thought—when they said they wanted to “right-size” government they meant they wanted to make it bigger.