| January 5, 2012
No property-tax increase necessary
On November 29, 2011, OCPA and Art Laffer, Ph.D., an economic adviser to President Ronald Reagan, released the findings of a new research study evaluating the economic benefits of phasing out Oklahoma's personal income tax over a 10-year period. One of the report’s key findings is that eliminating Oklahoma's personal income tax without increasing other tax rates would result in the state having the lowest overall tax burden of any state except Alaska. OCPA and Laffer are not alone in recognizing the tremendous opportunity to phase out the state’s personal income tax. Gov. Mary Fallin, lawmakers, state leaders, and many others recognize the expansion of economic freedom and prosperity that would take place if Oklahoma were to phase out this tax.
The Left and various tax users in Oklahoma have staked their claim to fear tactics in efforts to oppose allowing citizens to keep more of their own income.
One of the most hollow fear tactics being used by the Left and the tax users is that if state income taxes are eliminated, “property taxes will be increased.” When this emphatic statement is made, no thoroughly analyzed reason is given. Some say, “Texas has no income tax and their property taxes are sky high compared to Oklahoma,” or “Government is already underfunded, so the money has to be found somewhere.”
But it’s simply not true that “property taxes will be increased” in order to phase out the personal income tax.
First, as Rep. Jason Murphey highlighted from the OCPA study, phasing out the state’s income tax is going to increase local revenues by approximately $3.5 billion a year once the tax is completely phased out. This is because as citizens have more of their own money, they use that money to create jobs, buy products, and make capital improvements and purchases that are all subject to other types of existing, unchanged state and local taxes. For example, despite cutting the state’s income tax rate more than 20 percent from 2004 to 2009, income tax collections never declined until the recession, and state sales tax collections alone grew by more than $490 million before being affected by the recession. So with new revenue subject to local control, citizens and their local officials will now be able to invest more of their income and local tax dollars toward the government expenditures that they deem important.
Second, in Article 10, Section 9 of the Oklahoma Constitution, the state is prevented from levying a property tax, and the only way to amend the state Constitution is for a majority of voters to approve such an amendment in a statewide election. Since Oklahoma will see growth in appropriations of $2.2 billion a year by the end of the phaseout period (as the study demonstrates), voters will have no need to approve a measure giving the state new authority to levy, collect, and spend property taxes. So, if people don’t want the state to have property tax revenue, they will not allow it to happen. They will oppose any measure that would attempt to saddle them with new state property taxes, just as they do today.
Third, the Constitution also requires local voter approval for any local government wishing to establish or increase property tax rates (millages). This process takes place regularly at the local level every year, and the only property tax rate increases that pass are the ones that a majority of the voters have approved. Since local revenues are going to increase by approximately $3.5 billion a year by the end of the phaseout period (as the study demonstrates), local voters will have no need to approve any measures for property tax increases apart from the process in which they already participate.
Fourth, as demonstrated in the study, the zero-personal-income-tax states with higher property taxes (such as Texas) still have an overall lower state and local tax burden on average than does Oklahoma. The study also demonstrates that if Oklahoma phases out its personal income tax, Oklahoma will have the lowest overall tax burden of any state except Alaska.
Finally, as OCPA has noted previously, state government spending is at an all-time high, in part because Oklahoma already has too many state and local government employees.
You don’t have to raise taxes in order to cut taxes. The evidence is clear: It is not necessary to raise property taxes in order to phase out the state’s personal income tax. If government eliminates waste, inefficiencies, and non-core spending of $300 million to $400 million (i.e., 6 percent of appropriations), Oklahoma can phase out its income tax without harming any core services.
The weeping and wailing of the Left and the various tax users will continue, but that is to be expected from those who have an insatiable appetite to spend more and more of someone else’s hard-earned money.