Budget & Tax, Good Government

The opportunity cost of Oklahoma’s corporate welfare

March 4, 2019

Curtis Shelton

Business and political leaders in every state want to grow their economies and provide a place where new jobs can develop. How they choose to do that varies greatly. States like Florida have low taxes with a broad base. Other states have attempted targeted subsidies to bring in new businesses. For example, New York and Virginia caused quite a controversy among taxpayers by offering $3 billion in incentives to Amazon for its new headquarters. This approach has grown in popularity, at least among politicians, despite the fact that studies have shown it reduces economic freedom, which has been shown to boost state GDP.

When a state hands out an incentive to a specific business or industry, the brunt of that cost is absorbed by other taxpayers. The Mercatus Center recently released a report, “The Opportunity Cost of Corporate Welfare,” which estimates how much states have cost their taxpayers by offering these types of incentives. In addition, Mercatus researchers also estimated how much states could lower tax rates by eliminating corporate incentives.

Nebraska took the top spot in how much the state could reduce its overall tax burden. Nebraska has the potential of reducing total state taxes by 8.4 percent by doing away with corporate incentives. The chart below shows the top five states with the most potential to reduce total state taxes.

Oklahoma, in sixth place with a potential reduction of 2.7 percent, just misses being on the list above. According to data from Good Jobs First, Oklahoma has lost $152 million in potential state revenue from these tax abatement programs. When local revenue is included, the total losses rise to $164 million. In terms of per capita revenue lost, Oklahoma ranks 13th out of all states at $41.82 per person, placing us in the middle of the pack when compared to surrounding states. Among states in the region, Missouri and Arkansas are outliers on either end of the spectrum as shown by the table below. Due to a lack of available data, Kansas was excluded.

Government should not be in the business of picking winners and losers. These policies result not only in an unfair advantage for favored companies but reduce overall economic growth in a state. If Oklahoma policymakers want the state to thrive, they must encourage entrepreneurial initiative by allowing free competition of companies and ideas, and the people behind them.