It has been an absolutely wacky first week of the Oklahoma legislature's 2012 session. Foods containing aborted fetuses? Personhood definitions? This cake featuring Ronald Reagan's face and an extra "W"? This declaration that "any action in which a man ejaculates or otherwise deposits semen anywhere but in a woman's vagina" would be "an action against an unborn child"? This isn't even counting the stuff going down at Night Trips' newest location, the insurance commissioner's office.
But maybe the most important news from this week was officially unveiled at Governor Mary Fallin's State of the State address. Fallin introduced a plan to reduce the Oklahoma state income tax drastically, from a current top rate of 5.25% down to a rate of 3.5% for individuals making more than $35,000 per year or couples making more than $70,000 per year. Fallin said that a family making $40,000 per year would pay 37% less in taxes in 2013. Amazing, right? So, how will we pay for it?
The official word is that the $100,000,000 revenue-deficiency in 2013 and the $300,000,000 revenue-deficiency in 2014 would be made up with the elimination of "loopholes", "credits", "carve-outs", and other words for things that unscrupulous businesses and rich people with personal accountants take advantage of. But, as it turns out, just doing the transferable tax credit stuff still means that the state is "woefully short" on making up the revenue lost. So that means eliminating a bunch of other tax credit programs that normal people use, like the personal exemption (claimed by 83% of tax payers), the earned income tax credit, the child care tax credit, a tax credit used to offset the sales tax for groceries for poor people, et cetera.
As it turns out, Mary Fallin's tax reform proposal would actually result in tax increases for the bottom 55% of income earners, according to the Oklahoma Policy Institute. Now that's broadening the base!
Other ways to pay for Fallin's tax reform proposal, according to Fallin, would be that as a result of shoveling fat stacks of Benjamins into the pockets of the Aubrie McClendons of the state, the state's economy would grow fast enough to overcome the revenue shortfall. "New jobs and increased investments in Oklahoma will lead to more revenue and increased collections in sales tax, corporate tax, excise tax, and more." Tax cuts pay for themselves, y'all. If this smells exactly like an Arthur Laffer supply-side voodoo economics argument-turd, it's because Arthur Laffer's consulting firm helped create the plan with the right-wing think tank Oklahoma Council on Public Affairs.
Oklahoma's economy has grown quite fast since the 2008-2009 recession in part due to our booming energy industry and in part because, well, nowhere to go but up, right? This should mean that bond ratings agencies would look more favorably at the credit rating of the state and its ability to pay back its bonds. But today Moody's announced that it was keeping the credit rating of the state steady, partly because of the tax reform plan, but mostly because our constitution makes it really hard to raise taxes.
From the Tulsa World:
The Moody's report says the state's financial situation is made stronger by a strong state constitutional balanced-budget requirement, a healthy state balance sheet, and substantial oil and gas reserves.
But the agency expressed concerns about the state's past and future plans to cut income taxes.
"The trend of decreasing income tax rates combined with the difficulty in increasing taxes constricts future financial flexibility," the Moody's report says.
So when bad economic times come again, tax reform will cripple the state, and we will be unable to afford many of the functions of government that so many people, at least in part, will depend on to offset the cost of having to pay higher taxes due to said tax reform.