The Oklahoman Embraces Good Tax Policy Principles, But Can They Apply Them?

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State policymakers don't always get the advice they need to make informed policy decisions. Not so in Oklahoma, where a recent Oklahoma Policy Institute report presents lawmakers with a detailed list of the tax giveaways embedded in Oklahoma's tax system, suggests a set of principles for evaluating these loopholes, and urges the state to evaluate each of these "tax expenditures" as part of their budget-balancing process. The editorial board of The Oklahoman this week laudably expressed a similar view, calling for lawmakers to find "sensible new sources of revenues." Specifically, the board has embraced capping or eliminating any tax credits that are ineffective in accomplishing their intended purposes, which is exactly what OK Policy's report recommends.
The Oklahoman's position here is quite sensible, and represents a welcome reprieve from the all too common, yet irrational practice of addressing budget shortfalls by taking the knife to valuable spending programs, while giving the kid-glove treatment to spending that is done through the tax code. But The Oklahoman falls flat when given the chance to apply this important principle to one of the odder tax giveaways in the state's toolbox, a state income tax deduction for state income taxes. They complain that the state’s top income tax rate of 5.5 percent is “uncomfortably high,” and that any proposal that would affect upper-income taxpayers should therefore be rejected. But rejecting a tax base-broadener because the rates are too high is getting it exactly backwards. Tax Policy 101 says if you want to avoid increasing tax rates, you should make sure your tax base is sufficiently broad. Leaving aside the very contestable notion that a 5.5 percent top rate is "uncomfortably high", the fact is that eliminating the state income tax deduction would strengthen the Oklahoma income tax base in a way that would make it a more efficient revenue-raiser, and would reduce the likelihood that lawmakers will be forced to hike rates down the line.
The Oklahoman's unwillingness to see this basic inconsistency between principle and practice is all the more maddening because OK Policy has recently shown that eliminating this tax break could raise substantial revenues at little cost to low- and middle-income families, and because one other state, New Mexico, eliminated an identical tax break to help balance their budget earlier this year.
If The Oklahoman’s editorial board really wants to see “ineffective” tax breaks eliminated, it should become one of the most fervent supporters of eliminating an illogical state tax break that exists only because the state happens to have built its income tax rules on top of those in place at the federal level.

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