One hundred years ago, the Oklahoma Legislature approved what appears to be the state's first special-interest tax break.
The Old Soldiers bill, passed March 11, 1911, allowed poor and crippled Civil War veterans and their widows to give “illustrated lectures and magic lantern exhibitions” without paying the customary hawkers and peddlers license fee.
At last count, the state was providing 480 exclusions, credits, deductions, deferrals, incentives and other special tax breaks. Some are huge, such as the pass-through of itemized federal income tax deductions. Some are minuscule, such as the sales tax exemption for railroad track spikes.
Although the Oklahoma Tax Commission has no official estimate of the cost of state tax breaks, unofficial estimates discussed in the Oklahoma legislature put this cost as high as $5 billion a year. The state's budget for 2011-12 is $6.5 billion.
“It makes my head hurt,” lamented Larkin Warner, retired regents professor of economics at Oklahoma State University and a member of a state tax break review committee.
“These doggone legislators, every year, they chip away at the integrity of the tax base,” Warner said. “They're responding to pressures on the part of some of their constituents. But the overall result of it is a mess.”
Many of the tax breaks are broad-based and enjoy considerable support among lawmakers, economists and tax authorities. An example: the sales tax exemption for prescription drugs, which reduced state revenues by $143 million last year.
But some of the tax breaks are sizable and, in the view of some key lawmakers, highly suspect. Two already have been targeted for extinction: the Small Business and Rural Venture Capital Formation credits, which promised benefits greater than the amount of money put up by investors, and cost the state $48 million in 2010.
“A lot of these credits are giveaways,” said House Revenue & Taxation Chairman David Dank, R-Oklahoma City. “We've got these high-powered lawyers who sit down here in these ivory towers and don't do anything but think about how they can get into the public coffers. And they make a lot of money for doing it.”
In the final days of its 2011 session, the Legislature approved a special task force study of tax breaks to be conducted during the summer and fall. The panel will consist of six lawmakers, including Dank, and four statewide officials, including State Treasurer Ken Miller.
“We need to take a comprehensive look at the way government is financed in Oklahoma,” said Miller, an Edmond Republican. “If you were going to start out fresh and design a tax code that would encourage economic growth and development, you would not design the system that we have.”
Even if most of the popular, broad-based tax breaks are preserved, the questionable ones still add up to hundreds of millions of dollars a year.
Dank estimated the Legislature could boost state revenues by $250 million a year if it got rid of a dozen or so ineffective, inequitable or obsolete tax breaks. Senate Finance Committee Chairman Mike Mazzei, R-Tulsa, another task force member, said he believes selective pruning could yield as much as $500 million annually.
Some reform advocates are conservatives who would like to use the additional revenue to reduce or eliminate other taxes. Some are moderates or liberals who would prefer to restore funding for state services that have been hit hard by repeated rounds of budget-cutting. Some advocate a combination of both.