Friday, March 4, 2016
By The Oklahoman Editorial Board Published: March 4, 2016
GIVEN Oklahoma's $1.3 billion shortfall, many expected state lawmakers to consider some tax or fee increases this year, along with spending cuts, to fill the budget hole. And members of the Oklahoma Senate, in particular, have advanced numerous bills to repeal or place moratoriums on current tax breaks.
The problem is that the Senate has advanced numerous tax increases of various stripes while doing little to address this year's budget challenges. This is occurring because the impact of many tax changes would not be felt until the 2018 budget year, as opposed to the 2017 state budget lawmakers are drafting this session.
That policy formula would give Oklahomans the worst of both worlds: massive spending cuts in 2017 followed by large tax increases in 2018. So why raise taxes to “prevent” spending cuts that will have already occurred?
As Fred Morgan, president of The State Chamber, noted in a recent meeting with The Oklahoman's editorial board, repealing incentives is “not going to solve their budget crisis. The savings are going to be captured in future years if they are captured at all. And if you diminish the investment in the state by businesses out of state, you're going to have a smaller pie at the end of the day.”
Politically, it's become fashionable (if incorrect) to blame tax incentive programs for Oklahoma's budget woes. While we certainly support credible review of tax credits and incentives, and support repealing those that are not effective, there's little doubt many incentives work.
Moreover, repeal of most incentive programs does little to change the immediate budget outlook, as evidenced by Oklahoma Tax Commission fiscal analysis documents provided to members of the Senate.
Consider Senate Bill 977, which passed out of the Senate Finance Committee. That bill would repeal more than two dozen tax breaks for two years, including the Oklahoma Earned Income Tax credit and credits for child care, new job creation, affordable housing, aerospace employers and more.
Yet despite its sweep, SB 977 would reduce the $1.3 billion budget shortfall by just $4.2 million in 2017 (about three-tenths of 1 percent). But in the subsequent 2018 budget year, it would increase taxes by more than $146 million.
Senate Bill 1393 has similar problems. That bill targets the new jobs credit and credits for rehabilitating historic structures, energy-efficient homes and railroad modernization.
Currently, individuals and entities who qualify for those credits can carry them forward if current-year tax liability is less than the credit amount. SB 1393 restricts the amount of time the credits can be carried forward.
Yet the Tax Commission's analysis predicts this change to the new job credit will have “no impact” on tax collections in budget years 2017 or 2018. The same is true for changes to the other three credits. In fact, the commission predicts the change to the historic building and railroad credits may not be fully felt until 2024, if then.
In short, the aforementioned bills do almost nothing to reduce a $1.3 billion shortfall, but they do create uncertainty for individuals and businesses that currently rely on those credits and often operate on three- to five-year business plans.
You can't spend in 2017 money generated by tax increases in 2018. But lawmakers pretending they can do so may make private companies less likely to invest in Oklahoma immediately.