Oklahomans Reject Laffer Plan, Preserve Their Income Tax

Oklahoma Governor Mary Fallin admitted last week that she and her allies had failed in their efforts to roll back the state’s income tax this legislative session, despite high hopes among supply siders that the tax would be not only cut but entirely repealed.  As The Oklahoman explains, however, both voters and businesses recognized that reducing taxes would mean further cuts in education and public safety piled on top of those already inflicted in recent years.  Public opposition aside, however, it did seem all too possible that Arthur Laffer (the Governor’s tax advisor) and his colleagues’ pitch that shredding the tax code would lead to economic rebirth was going to be enough to get an income tax cut through the legislature.

Over a half dozen tax cut plans were given serious consideration this year in Oklahoma, most of which would have, in fact, raised taxes on low-income families by repealing important tax credits, and all of which would have tilted Oklahoma’s overall tax system even more heavily in favor of the wealthy.  Some of the proposals, like the modified version of Arthur Laffer’s plan pushed by Governor Fallin, would have repealed the income tax entirely.

In the final days of the session, it looked like lawmakers had come to an agreement on a comparatively modest plan to cut the top personal income tax rate from 5.25 to 4.8 percent, and then possibly to 4.5 percent a few years later.  Noticeably absent from the proposal, fortunately, was any repeal of low-income credits— likely due in part to analyses by the Institute on Taxation and Economic Policy (ITEP) showing that repealing these tax credits would mean a significant tax increase for a large number of the state’s most vulnerable residents.

Instead, lawmakers hoped to pay for their proposed rate cuts with a combination of spending cuts, repealing various business tax credits and eliminating a handful of tax breaks for individuals.  Even then, however, analyses by ITEP and the Oklahoma Tax Commission showed that a significant number of low- and middle-income Oklahomans would see their taxes rise under the plan.  And just as the state’s largest newspaper editorialized about these revelatory analyses, support evaporated in the state House of Representatives.

As the Oklahoma Policy Institute explained last week, “The failure of every tax cut proposal that was debated this session is a victory for Oklahoma… We know, however, that this is just a brief intermission in a long battle over the right tax policy for Oklahoma.  We need to look with renewed seriousness at our outdated tax system and do away with unnecessary tax preferences. And we must improve tax fairness and not allow middle- and low-income families to shoulder a larger share of the load.” 

(Photo from NPR State Impact)