Oh, but it can. The state Legislature this session passed House Bill 2032 to decrease the maximum Oklahoma personal income tax rate from 5.25 percent to 5 percent in 2015 and then again to 4.85 percent in 2016 if there is sufficient revenue growth. When fully implemented, the Oklahoma Tax Commission estimates the measure will reduce state revenues by $237 million per year.
Although it represents only 3 pecent of the total state budget, $237 million is a lot of money. As the Oklahoma Policy Institute has pointed out, for the cost of the tax cut the state could hire 1,800 teachers, offer free tuition for 10,000 college students, provide SoonerCare coverage for 37,000 children, incarcerate 1,000 inmates … and still have $55 million left over.
In part to minimize the concerns about lost state funding’s effects on core government services, tax cut proponents argue that cutting the income tax will generate faster economic growth and higher state revenues over time.
To bolster their claim, they note that Oklahoma has been cutting the income tax for more than a decade … and state revenues have risen.
Specifically, the press release from House Speaker T.W. Shannon’s office praising HB 2032 states that “since the Legislature began cutting the tax rate, Oklahoma has seen a 47-percent increase in revenues from $1.9 billion to $2.8 billion.”
However, this is a poor — and even misleading — statistic. While it is true that tax revenues have risen while Oklahoma has been cutting taxes, it is not because of the tax cut, but in spite of it.
Generally, tax revenues grow when personal income does. Since 2000, personal income in Oklahoma has increased by 75.4 percent. During that time frame, state sales tax collections, which typically grow at a rate slightly below personal income growth, have risen by 62.05 percent.
However, personal income tax collections, which typically grow at the same rate as personal income, have risen by only 26.68 percent since 2000. So, yes, personal income tax collections have risen while Oklahoma has been cutting the income tax — but the collections have not increased as far as they would have.
In fact, if state income tax collections had risen at the same 75.4-percent rate as personal income, the state would be collecting an additional $1 billion more per year. That’s an additional $1 billion annually that could be educating our children, caring for the needy, improving our roads and protecting us from criminals.
One small tax cut shrinks core government services. Many small tax cuts, however, cripple those services.
Ever since the Keating administration, state Republicans have been intent on shrinking government by cutting the state income tax. Now, with the passage of more small tax cuts in 2015 and 2016, they are letting the income tax — and core government services — die from a thousand cuts.
Hepner is dean of the College of Business at the University of Central Oklahoma.