TRIGGERS come to mind when considering the open carry law, but triggers are just as relevant to the debate over tax cuts. Open carry is moving toward the governor's desk, not quite as fast as a speeding bullet perhaps but rapidly nevertheless. An immediate income tax cut and measures to trigger them in the future? Those are moving targets as the Legislature enters its final month.
Tax cut triggers are already embedded in state law, starting with the one that reduces the gross production tax on natural gas when prices fall below a certain level. Also, the state's current top individual income tax rate, 5.25 percent, fell to that level because of an economic growth trigger. Other such triggers are now being discussed.
Tax cutters are determined to get the rate below 5 percent; others are just as determined to keep the floor at 5.25 percent. Triggers can be compromise strategies. A tax cut is promised but conditioned on growth. Politicians can say they cut taxes even if they really didn't, at least not yet.
The trigger for gross production taxes makes sense. Producers are taxed at 7 percent if the monthly average price of gas stays above $2.10 per thousand cubic feet (MCF). When prices average below that, a reduction to 4 percent is triggered. Another trigger, when the monthly average drops below $1.75 per MCF, reduces the amount to 1 percent.
Thus, when producers are prospering, state revenues benefit. When prices are low, producers can keep a higher percentage of revenues but the state surrenders more of its take.
This protects a heritage industry in a time of decline but also depresses state revenues. State Treasurer Ken Miller expects a hit on state revenues of $70 million if gas prices are $1 per MCF under estimates. Current estimates were based on a price of $3.64 per MCF. The actual price is closer to $2.
State revenues flourish when oil prices are high. Those prices are now running ahead of projections, so gross production tax collections on oil — but not on gas — are higher than projected.
The two-way trigger for gross production taxes isn't the case with income tax triggers. If economic growth triggers an incremental rate reduction, the rate won't automatically rise when the growth ends. If it did, it would be a tax increase. And raising taxes in Oklahoma is difficult under the state constitution — requiring voter approval or a legislative supermajority.
Politically, triggers have the advantage of conferring a benefit (lower taxes) but deferring the time frame. Whatever wrangling took place over the open carry law could be magnified in the tax cut debate precisely because income tax triggers are a one-way ticket to lower taxes no matter what happens to the economy.
Triggers should thus be weighed carefully. What works for gross production taxes may not be the best approach for income taxes.
A modest income tax cut is almost certain to happen in the 2012 Legislature. It should happen. The thing to watch, though, is the trigger mechanism for future cuts.