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Raising Revenue Not as Hard as We’re Told

July 3, 2012 - 3:24pm CDT

On March 10, 1992, a majority of Oklahoma voters approved State Question 640 (SQ 640). The state question amended the state constitution to require (among other things) voter approval of bills raising revenue, or three-fourths approval of bills raising revenue by both the House and Senate and action on the bill by the governor.

Overall, SQ 640 has provided some protection to taxpayers by requiring more broad support and careful consideration of measures that raise revenue. For example, during the last five days of the 2010 legislative session, the legislature and the governor tried to sneak past a one percent “fee” on most health insurance claims purely for the purpose of funding the state’s Medicaid program. The “fee” was overturned after a successful challenge of the law by then-state Insurance Commissioner Kim Holland (full disclosure: I worked for Commissioner Holland at the time).

But contrary to what progressives, tax users, and even rating agencies might have you believe, SQ 640 has not prevented the state from raising revenue, or even raising taxes.

For example, House Bill 3152 was passed by the legislature in 1998, reducing the top income tax rate from 7 percent to 6.75 percent. The final vote on the bill was 99-1 by the House and 45-0 by the Senate. One of the provisions of the bill required the state Board of Equalization to review revenue increases or declines after a year of the tax cuts. If future revenue amounts were below a certain level, then the rate automatically was to increase back to 7 percent. Six years after passage of the bill, during 2004, the rate increased back to 7 percent because of the findings of the state Board of Equalization. So even after SQ 640, state personal income taxes have been lowered, and subsequently increased.

A review of legislation from 2009 to 2011 reveals that when lawmakers determine revenue increases are “really necessary,” lawmakers can make it happen. In 2009, at least four bills were enacted that raised undedicated revenue for the general revenue fund. The total amount expected to be generated from these funds for the general revenue fund exceeded $22.4 million (for one fiscal year).

In 2010, at least four bills were enacted that raised undedicated revenue for the general fund. The total amount expected to be generated from these funds for the general revenue fund exceeded $50.3 million (for one fiscal year). The 2010 legislative session also included a host of other “revenue enhancements.” In 2011, a provider tax was overwhelmingly passed by the Oklahoma legislature with more than three-fourths majorities in both the House and the Senate, and was signed by the governor. This new tax is expected to generate $152 million in state funds and $268 million in federal funds per year.

In short, raising revenue is not as hard as we’re told. In fact, as the 2012 legislative session showed, it’s cutting taxes that’s a lot harder than promised.

Jonathan Small, a Certified Public Accountant, is the fiscal policy director at OCPA.