Representatives from two neighboring states seeking to lower their personal income tax rates encouraged Oklahoma lawmakers Thursday to pass a tax cut this year while critics down the street called the tax-cutting proposals frightening.
“It can't work,” said Alexander Holmes, who served as state finance director during former Gov. Henry Bellmon's second term from 1987 to 1991. “The math is so obviously insane it can't work.”
Holmes, a regents professor of economics and department chairman at the University of Oklahoma, said he worries that reducing the state's personal income tax, without having another source of revenue to replace it or detailed cuts in state programs, will have a harmful effect on state services.
Voters in 1992 approved State Question 640, which requires that any tax increase receive three-fourths approval in the House of Representatives and Senate, or approval from voters. That makes it unlikely lawmakers could seek a tax increase of any kind if estimates of new revenue to the state are not achieved with lower personal income taxes, he said.
“The scariest part of this is if it doesn't work you can't fix it,” Holmes said during a seminar at the Oklahoma History Center sponsored by the Oklahoma Policy Institute, a nonprofit group that analyzes state government spending.
About two blocks away at the Capitol, several Republican House members attended a session sponsored by the Oklahoma Council of Public Affairs, a conservative think tank and a backer of a couple of proposals to reduce the top personal income tax rate of 5.25 percent by more than half.
“Now is not the time to settle for a minor reduction,” said Brian Bush, vice president of the Oklahoma Council of Public Affairs. “Now is the time to double the powder and shorten the fuse.”
Travis Brown, president of Let Voters Decide, a nonpartisan group in Missouri that is behind a signature drive to get an income tax-cutting plan on the ballot in November, had similar advice.
“Now is no time to let your foot off the gas pedal here,” he said. “You're very close to passing some major reforms that could be not only a real inspiration for real economic growth for your state but ... also an inspiration for ours to pass ours.”
Brown's group has spent about five years working to place on the ballot a constitutional amendment that would replace the state's income tax, which has a top rate of 6 percent, with a broader sales tax. Supporters have until early May to gather enough signatures to get the measure on the ballot.
Kansas eyes plan
Steve Anderson, budget director for the state of Kansas, said Gov. Sam Brownback sent a message that people eventually will live on the East and West coasts only for a view of the ocean as businesses will move to the central United States because of its strong work ethic and lack of a personal income tax.
“It's not just about cutting income tax,” Anderson said. “What the governor said to me is it's about pulling it up by the roots because then it won't regrow.”
Lawmakers in Kansas are discussing Brownback's proposals to cut the state's top individual income tax rate from 6.45 to 4.9 percent and eliminate income taxes for 191,000 partnerships, sole proprietorships and other businesses. Lawmakers rejected proposals to end a long list of income tax deductions, including ones for charitable contributions and interest payments on home mortgages.
“We believe we will get a significant cut this year,” Anderson said. “We got caught in the same firestorm you've been caught in. Who knows that everybody bought a house based on their state mortgage deduction?”
Oklahoma lawmakers are dealing with five proposals seeking to reduce the personal income tax next year. Proposals range from cuts of a quarter percent to 3 percent. The proposals call for spending cuts; most call for cutting deductions, exemptions or economic tax credits, which lawmakers haven't done so far this session, which is half over.
Cause for concern
Speakers at the Oklahoma Policy Institute forum warned that cutting the personal income tax too quickly could harm funding for essential state services. Personal income taxes bring in about 30 percent of the money legislators appropriate; that doesn't count nearly $800 million of personal income tax revenue that goes to transportation, education and teacher retirement funds before the tax collections go into the general revenue fund.
Cynthia Rogers, an associate professor of economics at OU, said most of the income tax-cutting plans lawmakers are considering have not been supported by research. She said there is no precedent for eliminating 30 percent of a state's revenue.
While proponents of reducing and eliminating the personal income tax have said the lower rate will stimulate the state's economy by attracting businesses and allowing most residents to have more money per paycheck to spend, it is wrong to assume that residents will spend every one of those saved dollars in Oklahoma, she said. The wealthy tend to save more and they travel, meaning they spend their money outside of Oklahoma, she said. Also, consumers may avoid paying state sales taxes by buying goods on the Internet, she said.