In tax reduction, Oklahoma moves from leader to follower

By   /   February 7, 2013  /   No Comments

BROWNBACK: A man with a low-tax plan that Oklahoma officials could learn from.

By Patrick B. McGuigan | CapitolBeatOK

OKLAHOMA CITY – In 2012, the Wall Street Journal designated Oklahoma the cutting-edge Heartland state, as Republicans appeared ready to phase out the unpopular state income tax.

Sooners lost that edge as Gov. Mary Fallin and legislators fumbled away the low-tax agenda in the closing days of the 2012 session, an epic fail.

This week, the Wall Street Journal detailed Kansas Gov. Sam Brownback’s drive to turn his state into “Exhibit A for how sharp cuts in taxes and government spending can generate jobs, wean residents off public aid and spur economic growth.”

On Jan. 1, the top income tax rate in Kansas dropped to below 5 percent. Brownback and his allies want to take that to 3.5 percent within a few years. He’d like to follow the lead of Texas, where the state income tax is zero.

Leaders in Nebraska and Louisiana are following Kansas – not Oklahoma. Rather than assuming tax rates are fixed natural laws, they believe taxpayers and consumers will respond to lower taxes rationally —  by saving, investing, hiring workers and growing their states’ economies.

Don’t bet that Oklahomans have learned their lesson. The state’s pundit class depicts Kansas as a fiscal disaster. Capable politicians in both political parties are joining in the spin.

One liberal analyst, with a Tulsa think tank, commented several weeks ago that Kansans were having “buyer’s remorse” over Brownback’s tax cuts.

Brownback sure doesn’t see that.

“I’m not having buyer’s remorse at all,” the governor told me. “We’re getting some nice early indicators of the positive effect of our tax cut stimulus. … It only went into effect on January 1. Along the Missouri border, there are a lot of anecdotal indications of a positive impact.

Nor, he says, is the business community showing signs of worry, Brown said: “They consider our tax reduction a positive pro-growth step we’ve taken in keeping with what we pledged to do.”

Is anyone in Kansas expressing anything like post-purchase anxiety about lower taxes?

Brownback figures it’s possible that “people who use government resources have questions and challenges about the tax reduction. But that is not a surprise. When I came into office … the choice was really whether we wanted to continue a slow or likely accelerating decline, or get on a different path.”

They got on a different path.

Looking around, Nebraska Gov. Dave Heineman frets that his state now has a higher personal tax levy than every one of its neighborsIowa, Kansas, Missouri, Colorado and Wyoming. He wants to nip and tuck at business deductions, so he can bring down the personal rate. Louisiana’s Bobby Jindal is pushing to slash taxes, too.

Despite the evidence, here in Oklahoma efforts mount to describe what’s happening in Kansas as a disaster. Three months ago, our state treasurer commented on Brownback and the Sunflower State, saying: “He signed it and they just cut their education budget by 10 percent because the growth revenues they were projecting didn’t happen. So they’re going through a pretty tough adjustment to the budget now.”

Asked about that, Brownback commented: “In terms of state aid, K-12 education is holding steady, at a flat base. … The K-12 total actually goes up some due to spending on pensions and on buildings. To be clear, spending on education has gone up every year since I’ve been governor.”

Then, I asked him about a report that Oklahoma’s Republican Senate leader “does not favor a general tax cut, saying he did not want a situation such as the one in Kansas, where state agencies have been told to reduce spending 10 percent after the Legislature and Gov. Sam Brownback slashed income taxes by $2.5 billion.”

Brownback detailed the sensible approach taken to establish fiscal conservatism as a given in Kansas.

“The request was to every state agency, to tell us what a 10 percent cut would look like,” he said. “That’s because we are trying to plan for all possibilities and we are bringing real discipline to the budget.

“Medicaid will be funded, with a slight expansion of services because of reforms we are making. We are simply not experiencing what was indicated in that comment.”

He’s a man, with a plan: “We’re aiming to take spending to 2010 levels over the next two years. Keep in mind that is the spending level that was in place when I came to office.”

When Brownback took office, the state had $876.05 in cash: “The state was projecting … a $500 million hole. Instead, we expect to have $500 million in the bank. Things are better now than when I took over, and we expect them to get better still.”

Bottom line: Oklahoma’s neighbors in Kansas are at the front end of a bold plan to make tax cuts for taxpayers a central part of government policy.

Gov. Brownback planned for revenue decline, is asking for elimination of some tax deductions so that he can drive the tax rate still lower, and believes the long run will bring Reagan-style revenue growth.

Oklahoma should be alert. In his State of the State address last month, Gov. Brownback said, “Look out Texas, here comes Kansas.” Meanwhile, Oklahoma is stuck in the middle.

NOTE: This is updated from McGuigan’s essay that also appeared in the February 2013 edition of Perspective Magazine, monthly publication of the Oklahoma Council of Public Affairs.

 

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Patrick B. McGuigan is bureau chief for the Oklahoma City Bureau of Watchdog.org, and works from the press room at the state Capitol. He is also the editor of CapitolBeatOK, and Associate Publisher of The City Sentinel newspaper. In 2013, The Washington Post blog “The Fix” designated Pat one of the best reporters in Oklahoma. In addition to the Oklahoma Society of Professional Journalists, where he serves as state secretary-treasurer, Pat is a member of the National Press Club and the Tulsa Press Club.