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Lower income taxes in Kansas, so what has Oklahoma learned from their situation?

Filed by KOSU News in Feature.
March 13, 2013
 

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In Oklahoma, the income tax is nearly always in the discussion at the State Capitol. Most Republicans want to slice it, most Democrats want to hold it. There’s two specific proposals working through the Legislature now…one from Governor Fallin would cut the top rate from 5.25 percent to 5 percent, another would take it down to 4.75 in steps. What kind of study goes into these types of proposals?

It’s good politics in most parts of Oklahoma to run on a low tax pledge. All federal and statewide seats are now red, and Republicans dominate the House and Senate at the Capitol. A plan to make a change failed last year, while Kansas was slashing their rate.

“The lower those two, your corporate or your personal income tax are, the higher growth factor you’ll find.Sales and property are obviously important pocketbook issues, but don’t really bring you the growth.”

Nick Jordan is Secretary of Revenue for Kansas. The state cut the income tax for small businesses, and the top rate came down a couple notches too. So far, the revenue hasn’t returned.

“We’ve said all along that’s it’s going to take a year or two, maybe two years before you see the real effects.”

“He’s either going to have to increase taxes to fill that hole or he’s going to have to make some very drastic cuts across the board to state services.”

That’s Representative Nile Dillmore, Democrat out of Kansas’s 92nd district. He’s talking about Kansas Republican Governor Sam Brownback, who pushed the change.

“This plan was overly aggressive. It was as Brownback’s own characterization of it, an experiment in tax policy. One that has not shown itself to be effective.”

So what has Oklahoma learned from Kansas?

“Try to derive a revenue neutral approach to slashing tax rates. They just slashed the rate and now they’re stuck with severe budget shortfalls.”

Republican Senator Mike Mazzei is the author of one of the proposals, and chairman of the State Senate Finance Committee. The tax cut in Kansas left the state without hundreds of millions of dollars in revenue. Mazzei’s plan would cost about 108 million dollars by fiscal year 2016 in Oklahoma.

“I think in Oklahoma we’re attempting to do this in a much more responsible way that allows us to get rid of those special giveaways for a select few.”

The non-partisan Oklahoma Tax Commission comes up with cost estimates for many pieces of legislation, analyzing the language and figuring out the expected results. But Mazzei says they don’t see what he does…

“I’m very confident that given this approach over a 3 year period, it will ultimately turn out to be revenue neutral.”

Mazzei’s relying on other changes, outside of his legislation though. There’s this from Fred Jordan, Floor Majority Leader in the House, as well.

“Obviously you would assume that it’s valid information and very accurate. But when you’re talking about numbers as large as what we’re talking about in tax cuts, I’m sure there could be some variance in there.”

Nearly every piece of legislation has some good and some bad to it. One side might find more good than the other side. And so Preston Doerflinger, Secretary of Revenue and Finance for Governor Fallin, concedes the criticism exists.

“I think those who would argue against it, who would sound alarms of caution is that there’s the risk because it’s very difficult and probably not going to happen to raise taxes, that as we incur these income tax reductions, that if there were a downturn, that could cause problems in being able to fund state government.”

Conventional wisdom charges ahead though, despite the warnings, despite the difficulty in ever raising taxes once they’ve been lowered because of Oklahoma constitutional limits, despite answers like this:

“Do I think that you tie income tax reduction and revenue increases completely together? No. But do I think it’s a contributing factor to growth in state revenue? Absolutely, because that dollar circulates in the economy.”

Back to Fred Jordan, the Floor Majority Leader in the House. He also sponsored legislation aiming to overhaul the worker’s compensation system in Oklahoma. In that case, he said 2 plus years of study has helped bring some clarity to the subject for him. What’s the principle he follows that could apply to tax policy?

“Something that could sound really good politically may be bad for the state and if that’s the case, you really got to protect against doing something that could ultimately harm the state if the policy is not good.”

Income taxes have been studied, re-studied, and argued about for years. But for all the talk about lower taxes bringing more economic growth, it’s unclear at what level Oklahoma lawmakers would like to stop cutting the rate. Meanwhile for Kansas, Governor Brownback has publicly campaigned on eliminating the state’s income tax.

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If you believe in lower income taxes, at what point do you stop cutting? And if you think state services aren’t getting enough money, what income tax rate would you be willing to pay? Let us know in the comments.

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