What the last round of tax cuts teaches us: Lower rates, higher revenues
August 20, 2012
News that state tax revenues have maintained and experienced growth is indicative of the hard work of Oklahoma citizens. The state just completed a fiscal year that provides a valuable lesson for the future.
Some may have forgotten the latter part of 2010 and the first couple months of 2011. The final 0.25 percent reduction in the state’s personal income tax rate was scheduled to begin for FY-2012 and receive formal notification by the state board of equalization. At that time a significant amount of concern was raised about the fact that growth out of the lower revenue years had triggered the reduction. Tax users and their advocates loudly and publicly lamented the impending tax cut and repeatedly reminded anyone who would listen that the 0.25 percent reduction was going to lower state personal income tax revenues by approximately $61 million for FY-2012.
According to annual net collection data from the Oklahoma Tax Commission, state personal income tax collections were $2,396,668,662 for FY-2011 and $2,692,968,300 for FY-2012. This represents an increase of more than $296 million. State sales tax collections were $1,997,659,460 for FY-2011 and $2,190,600,218 for FY-2012. This represents an increase of more than $192 million. In a year with the lowest top state personal income tax rate (5.25 percent) since cuts began in FY-2005, the state set the record for net state sales tax collections and the state even managed to make a record deposit to the “Rainy Day Fund” in a year where state personal income taxes had been cut.
Since state personal income tax cut efforts that began in FY-2005, net state sales tax collections have increased by more than $694 million, even with periods of volatile energy prices. In the eight years preceding state personal income tax cuts that began in FY-2005, the sales tax growth rate was 3.97 percent. In the eight years since state personal income tax cuts began in FY-2005, the sales tax growth rate was 5.80 percent, in a period that included both volatile energy prices and an economic decline that some have described as the worst since the “Great Depression.”
Pro-growth policies such as right-to-work and cutting income and death taxes work, and they are working in Oklahoma and impacting the region. Whether letting citizens have more control of the fruits of their labor has an immediate impact on revenues is not the highest priority. The highest priority is letting citizens have more control of the fruits of their labor. Oklahoma has proved when you do, not only have citizens justly kept more of the fruits of their labor, but also “tax-rate cuts like that provide a long-term stimulus.”