WEATHER trends are often cited to support political positions, such as those either pushing a climate change agenda or opposing that agenda. It's dangerous, though, to put too much stock in short-term temperature or precipitation trends when formulating a policy stance.
The same is true of government revenue trends. We thus urge caution in jumping to conclusions about a trend toward higher state income tax collections at a time when income tax cuts are supposedly depressing revenues. Those who pushed the cuts are enthused by recent trends. They've said for years that total revenues increase following tax cuts, when the opposite should be true.
State Secretary of Finance and Revenue Preston Doerflinger said Tuesday that general revenue fund receipts were up by nearly $90 million — 14.7 percent — last month when compared with April 2012. Income tax collections account for most of the gain. This wasn't just a one-month trend: Net income tax collections for the first 10 months of fiscal 2013 were 13.5 percent above projections.
Still, total year-to-date general fund receipts were only 1 percent higher than the year-earlier period, and the April income tax figures may be an aberration. The year-to-date income tax receipts, however, aren't an aberration.
Doerflinger and Gov. Mary Fallin hailed the latest figures as another sign of the resilience of Oklahoma's economy despite depressed natural gas prices and sequester-related cuts in federal spending. Fallin added that the results provide further proof of the wisdom of pro-growth policies that include income tax cuts.
Solid growth in personal and corporate income tax collections in April boosted a state government suffering from relatively weak sales tax, gross production tax and motor vehicle tax collections last month.
The upshot of all this is that tax cutters have fodder for support of their position, based on what happened in April and even on what's happened in fiscal 2013. Their political opponents will cite the precipitous decline in gross production tax receipts as yet another reason income taxes shouldn't be cut — adding to a long list of reasons.
Although subject to a court challenge, the latest income tax cut is now law. But it's quite modest and won't kick in until 2015. The Oklahoma Policy Institute finds little to celebrate in the figures Doerflinger just released. Noting that the fiscal 2014 budget is more than $600 million below the pre-recession peak, OK Policy analyst Gene Perry says income tax cuts phased in from 2006 to 2012 “are an obvious culprit.”
Blaming tax cuts for current spending trends downplays the starring role of the national recession. States that raised taxes during the same period that Oklahoma lowered them have also faced major budget challenges. What's more, some state services are being funded at higher levels in fiscal 2014.
We see no calamitous impact from the next income tax cuts. Phase 1 of the cuts is relatively small and it won't start immediately. Phase 2 may not start at all if economic growth triggers aren't reached. For sure, though, every release of tax receipt information will be used to “prove” either the wisdom or the folly of income tax cuts.
Just as an unusually cool April doesn't necessarily mean a mild summer is in the offing, monthly revenue figures tell us little about long-term trends. Our forecast: The skies aren't as blue as the tax cutters would have us believe, but they're also not as dark as their opponents claim. Oklahoma will get through the next round of income tax cuts and likely emerge stronger economically.
But adequately funding state services will remain a looming presence, like a squall line approaching from the west.