AT the request of Boeing Co., more than a dozen states are reportedly in a bidding war for the chance to build 777X jets. The project could involve $10 billion in new facilities and up to 8,500 jobs. To reap that economic activity, policymakers across the country are eagerly embarking on an incentives arms race.
Washington state, where Boeing has a large presence, has offered $8.7 billion in incentives over 16 years — apparently the largest such package in U.S. history. Missouri will offer $150 million annually. Other states are keeping their offers secret. It's not known if Oklahoma is among them.
This may be nothing but a ploy by Boeing to force union concessions, or an effort to see if Washington state officials will pony up even more. Even so, officials in numerous states are taking the company's request seriously. The potential economic impact is too significant to ignore.
Oklahoma is involved in a similar incentives race, for oil and gas drilling. That may surprise some, but it's true: Oklahoma, in the heart of oil country, still has to compete for energy jobs.
As with the proposed Boeing incentives, some question whether Oklahoma's oil and gas incentives are cost effective. Do these jobs come to Oklahoma because of incentives, or would they be created regardless because of market forces? The state's tax break for horizontal drilling, in particular, has become a source of debate.
The tax rate on horizontal wells is 1 percent for 48 months after the start of production (it would normally be 7 percent). Once considered novel and risky, horizontal drilling is now the norm. Critics note that North Dakota imposes an 11.5 percent tax on horizontal drilling, yet has still experienced a major energy boom.
Earlier this year, state Finance Secretary Preston Doerflinger suggested horizontal drilling tax breaks could be adjusted, prompting strong reaction from many energy leaders. So far, there appears to be little legislative support for changing the incentive. At a recent forum hosted by The State Chamber, House Speaker T.W. Shannon flatly declared the drilling incentive program “is working” and “doing exactly what we expected it to do.” Shannon, R-Lawton, noted Pennsylvania has chosen to “completely eliminate” the tax on horizontal drilling.
We generally support the tax break on drilling, but a debate over its continuance is clearly underway. Some supporters of repeal will argue that step should be taken in conjunction with lowering the overall state tax burden to foster greater statewide economic growth even as narrow tax carve-outs are eliminated.
There's no denying that states compete for business, and that taxes matter. Thus, special incentive programs aren't going away. This doesn't mean incentive packages must be advanced at the expense of broader tax cuts on personal income. Lawmakers in Kansas, reportedly also a Boeing suitor, recently voted to cut the personal income tax to 3.9 percent over five years, which they offset with a higher sales tax.
Oklahoma's tax code must generate sufficient revenue to fund core functions of government while minimizing negative economic impact. Achieving the former goal doesn't necessarily require preserving or increasing overall tax rates. Good tax policy, including incentives and lower rates, can achieve that goal by increasing the number of taxpayers, not just the amount individually collected from them.