How Cuts to State Taxes Could Hit Voters in the Wallet (Oklahoma)

The title of this article is right up there for understatement of the year.  One proposal submitted by a member of the Oklahoma legislature removed all deductions including dependents and lowered the tax rate by a whole 1% which is most likely the one this article talks about retirees and members of the military were up in arms.  If you earned $30,000 from any source and could take no deductions, you would be paying $1,200 a year while currently with two dependents, mortgage, etc., you are probably paying a small amount.  If you are on a fixed income, you have no way to make up that $1200.  Oklahoma right now gives the military and federal employees a break on taxes for retirement income because many of us did not earn that income in the State of Oklahoma.  This legislator wanted to remove all tax deductions for everyone including donations to charity.

Some of the bills that come out of the Oklahoma legislature leave you scratching your head of why they were submitted when you realize that OK legislators are paid almost $40,000 a year, get medical care like a full time state employee, and are only in session from early February to late May.  We hear about how they are studying issues the rest of the time.  They are also encouraged to submit eight bills a year. Note:   The state constitution limits the Legislature to meeting 160 legislative days during each biennium. In addition, the Legislature may not meet in regular session after the last Friday in May of each year

Let's compare Oklahoma Legislature to the Texas Legislature since they are our neighbor to the south.  First of all the Texas legislature meets every other year and does a two year budget while the Oklahoma legislature meets every year and has trouble doing a one year budget.  Both can be called back in session by the Governor.  Oklahoma with a population of 3,751,351 has 101 House/48 Senate members of the Legislature.  Texas with a population of 25.1 million has 150 House/31Senate members.  Sitting here scratching my head on what Oklahoma needs so many members of the Legislature versus Texas and why can't our legislature pass a two-year budget and meet every other year.  Most likely because the members of the Oklahoma legislature wouldn't be paid almost $40,000 plus per diem (cost of travel and housing) when in session.

Before anyone blames Republicans, the numbers of Representatives/Senators and their pay came at the hands of the Democrats who held full control of the House for all but a short time until 2004.  Now Republicans control both houses in Oklahoma in fairly big numbers like the Democrats used to before this state became Republican.  The healthcare is from Republicans and they have done nothing to make a small legislature or do a two-year budget.

What sounded like a good idea to cut our state income tax here in Oklahoma, doesn't sound so good when you look at the details.  How could we expect the legislature to cut government?  (sarcasm)

How Cuts to State Taxes Could Hit Voters in the Wallet
By Bruce Watson
Posted 2:15PM 04/27/12

Nobody likes to give money to the government, and with bank accounts across the country still smarting from tax season, it seems like a great time to take aim at the tax structure. At least, that appears to be the case in several states that are currently weighing plans to phase out state income tax.

Proponents claim that these proposals will help ease the tax burden on working families but won't translate into significant cuts in services. However, the aftermath of similar policies in other states suggests that the current push to slash taxes may carry a very high price for some of the country's poorest citizens.

Cutting One Revenue Stream ... And Opening Another

In Oklahoma, one state that is currently considering ways to cut its tax burden, the legislature has already passed four separate proposals that call for a total phaseout of the state income tax system. But while the state's politicians agree that taxes need to be abolished, they've had a much harder time deciding on ways to replace the revenue stream. The most popular route is cutting out loopholes in the state tax code, but heavy lobbying from special-interest groups -- particularly senior citizens, retirees and veterans -- have made it clear that closing many of the biggest tax breaks is a non-starter. Not surprisingly, these three groups are also among the strongest voting blocs. 

Oklahoma's legislators are gambling that cuts in the state income tax will lead to massive increases in economic growth, as companies would presumably choose to relocate to the state in order to take advantage of tax breaks. With that in mind, a few of the proposals outline plans to phase-in tax cuts slowly, contingent on their success in building up business. For example, House Bill 1571 calls for a 0.25% drop in the tax rate for every 5% of growth in state revenue.  

Cutting Taxes ... But Not Services

Tax-slashing proponents have justified their plans with a populist appeal: Most claim that the state's "core services" won't be cut, and that the proposals will give extra money to working families. But even some advocates admit that the tax plans will come with a cost. Sen. Clark Jolley, the author of one plan, notes that his bill is not "revenue neutral": "Let's be very clear. Oklahoma will have less money to operate if this goes into effect." The Republican lawmaker's opponents, in turn, have argued that the lowered revenue stream will translate into cuts in health, education and transportation spending -- programs that directly benefit many of the state's poorer citizens. 

But even if services aren't cut, there's a good chance that slashing the state income tax will push a larger share of Oklahoma's revenue burden onto the backs of its poorest workers. In a recent study, the Corporation for Enterprise Development compared the percentage of income that the poorest 20% and richest 1% pay in state income taxes. The nine states that don't impose income taxes -- Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming -- topped the list when it came to soaking the poor.  

Excerpt:  Read More at the Daily Finance