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Oklahoma policymakers should give greater scrutiny to tax credits

by The Oklahoman Editorial Board Published: August 25, 2014

OKLAHOMA lawmakers don’t know how many recipients may cash in tax credits this year, don’t know the total amount of tax credits that will be handed out in any given year, and don’t know if those tax credits actually generate economic activity. But other than that …

No private business would operate this way, yet it remains par for the course in state government.

We’ve noted this before, but it bears repeating: State government budgeting is a mess. Lawmakers should consider simple changes that could reduce wild swings in revenue collections — swings that are unrelated to economic downturns. In recent years, the state economy has been growing, but poor financial practices have created artificial shortfalls through accounting tricks and weak budgetary restraint.

Poorly devised tax credit policy has played a role in that problem. Despite state economic growth, general tax revenue for the 2014 fiscal year came in $283.8 million below the official estimate. Corporate income tax revenues accounted for $175.3 million of that shortfall, due in part to tax credits. And corporate tax collections remained below projections in July. Uncertainty over who has tax credits, the value of outstanding tax credits, and when tax credits will be claimed has made it difficult for officials to devise reliable revenue forecasts.

Many state tax credits have no monetary limit, which means the amount issued can range from nothing to hundreds of millions of dollars’ worth annually. Such uncertainty does not foster sound budget planning. Some experts suggest implementing annual caps to limit the total that can be issued by any one credit program. That’s an idea that could lead to more reliable budget projections. It deserves serious consideration.

Another suggestion touted by several officials is to “sunset” all tax credits. Under that proposal, every tax credit would be eliminated after a handful of years, unless it is specifically re-authorized by the Legislature. This process would at least encourage legislators to examine and evaluate each tax credit program, something that appears to happen only haphazardly today.

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by The Oklahoman Editorial Board
The Oklahoman Editorial Board consists of Gary Pierson, President and CEO of The Oklahoma Publishing Company; Christopher P. Reen, president and publisher of The Oklahoman; Kelly Dyer Fry, editor and vice president of news; Christy Gaylord...
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