Kansas faces a revenue decline of $700 million for the fiscal year that begins July 1, compared with the current year. On the other hand, Kansans will pay less in income taxes. The state can boast that it taxes its highest earners at a lower rate than most states in the region, including Oklahoma. This will add fuel to the fire that Oklahoma must protect its flanks, sandwiched as it is between a state with no income tax (Texas) and another with a lower top rate.
Nevertheless, what's happening in Kansas is a cautionary tale. Cutting income taxes is a good thing; competitive disadvantages can't be ignored. Still, the 2012 proposals to reduce Oklahoma's top rate to 3.5 percent (as a step on the road toward eliminating the personal income tax) seem even more pie-in-the-sky today than they did a year ago.
Oklahoma's top rate of 5.25 percent is too high. But reducing it will require responsible policymaking that must include revenue offsets. A wild card in the deal is the federal fiscal outlook. Every governor has cause for concern: Averting the “fiscal cliff” merely delayed action on spending cuts. Stateline.org reports that governors and legislators must wait until at least March to learn the effects of proposed federal spending cuts — “a crucial question for states since the federal government provides about 30 percent of their revenue.”
Could it be that Oklahoma's conservative Republican government can't act on tax cut proposals because it can't get an answer from a liberal Democratic government in Washington on how soon and how much federal spending will be cut?