Surrounded by low-tax states, Oklahoma is an ‘income-tax sandwich’

By   /   February 5, 2013  /   No Comments

FOLLOW THE LEADER: Kansas Gov. Sam Brownback is pushing to take his state’s personal levy even lower.

By Patrick B. McGuigan | CapitolBeatOK

OKLAHOMA CITY — On January 1, Kansas made historic, deep cuts in business and personal income taxes. Not satisfied, Gov. Sam Brownback, who says he wants to put his state on “a glide path to zero” for personal income taxes, is working to cut the top personal rate further, to 3.5 percent.

That’s going to require some budget discipline. But thanks to two years of good stewardship, there’s enough cash on hand in Kansas state government (about $500 million) to take care of essential spending while continuing to study ways to right-size state government.

In Oklahoma, we tend to measure ourselves against Texas, one of the seven states where there’s no personal income tax at all. (Two other states tax interest and dividend income, but not other personal income.) East of Texas, Louisiana Gov. Bobby Jindal wants to eliminate all personal and corporate income taxes in Bayou country, where the personal rate is presently 3.9 percent.

Kansas to the north, Texas to the south, Louisiana to the southeast. Are we getting surrounded?

In Oklahoma, the 2012 legislative session began with high hopes of tax reductions, including Gov. Mary Fallin’s endorsement of a gradual phase-out of the personal income tax levy.

Not only did that idea fall apart, state leaders delivered an epic fail: The tax burden remained constant, and government spending increased by more than $300 million.

Surrounded by success, Oklahoma appears ready to repeat the failures of 2012.

As the Oklahoma legislative session commences — opening day was Feb. 4 — state leaders project the state has around $600 million in the constitutional reserve fund, better known as the Rainy Day Fund. Revenues are supposed to jump at least $170 million over last year.

But insatiable state agencies have asked for more than $1 billion in increased spending. And in her Feb. 4 State of the State address, Fallin asked legislators for a puny 0.25 percent personal income cut, taking the top rate from 5.25 percent to 5 percent.

Even the Oklahoma State Chamber of Commerce is an obstacle to lower spending. While our Chamber has pledged to oppose most efforts to trim costly business subsidies, the Kansas Chamber of Commerce has been a Brownback ally.

Last year at this time, Gov. Mary Fallin told The Wall Street Journal: “Oklahoma doesn’t want to end up an income-tax sandwich” — a high-tax state surrounded by low-tax neighbors all vying for high-income earners and new businesses.

Too late. The sandwich Fallin once feared is more or less already made. While we were spending beyond our means, it turns out other states were doing what we could not.

Just because we Oklahomans are paranoid about Texas doesn’t mean Kansas is not out to get us.

NOTE: This is adapted from McGuigan’s essay that also appeared in the February 2013 edition (http://www.ocpathink.org/articles/2179) of Perspective Magazine, monthly publication of the Oklahoma Council of Public Affairs.

Contact the author at Patrick@capitolbeatok.com and follow us on Twitter: @capitolbeatok.

 

 

 

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Patrick B. McGuigan