Oklahoma lawmakers are intent on taking an axe to the state’s only major progressive revenue source: the personal income tax. Last week the Oklahoma House and Senate passed a variety of bills cutting or repealing the tax, and negotiations on a final package could begin in as little as two weeks.
As the Institute on Taxation and Economic Policy (ITEP) and the Oklahoma Policy Institute (OKPolicy) have pointed out, all of the proposals being considered would greatly increase the unfairness of Oklahoma’s tax code without benefiting the state’s economy.
But from a political perspective, perhaps the biggest obstacle standing in the way of Arthur Laffer’s agenda is how to pay for deep cuts to (or total elimination of) a tax that provides one-third of all state revenue. Originally, lawmakers were optimistic that they could repeal special business tax breaks, breaks for senior citizens, and tax credits for the poor in order to partially fund a large cut in the state’s top tax rate. But lobbyists representing senior citizens and businesses have talked many lawmakers out of that approach. The more likely outcome now might be a slightly scaled-back package paid for with deep spending cuts and higher taxes on the poor.
The final outcome is far from certain, but it will likely be ugly as long as lawmakers continue to ignore the reality that income tax cuts won’t help the state’s economy, and that Oklahoma’s richest taxpayers already face an effective tax rate equal to just half of what the poor pay.
Photo of Oklahoma Capitol Dome via BJ McCray Creative Commons Attribution License 2.0