Analyst Warns Of State Budget Squeeze Following Tax Cuts

Thursday, September 27th 2007, 8:04 pm

By: News On 6

OKLAHOMA CITY (AP) _ A public policy analyst told lawmakers Thursday the Legislature is digging itself into a budgetary hole with tax cuts that will reduce state revenue by $776 million in three years and permanently hinder the state's ability to meet public needs.

Other analysts encouraged further reductions in state taxes, especially the franchise and individual income tax, to stimulate Oklahoma's economic growth and better compete with other states and nations that are adjusting their tax policies to attract investment and jobs.

The analysts spoke during a legislative study on tax reform and policy requested by Representative Randy Terrill, R-Moore, chairman of the House Revenue and Taxation Subcommittee and author of legislation passed earlier this year that accelerated implementation of state income tax cuts approved last year.

Terrill said he called for the study to determine whether general tax relief is needed in the state and, if so, in what form.

``I don't think tax cuts and increased targeted spending are mutually exclusive,'' Terrill said. ``I think it's about striking a balance. We're here today to find that balance.''

During the past three years, Oklahoma's maximum income tax rate has been reduced from 6.65 to 5.65%. The rate will fall to 5.5% in January and eventually to 5.25% if state revenue meets a growth trigger.

In a recent Associated Press interview, University of Oklahoma President David Boren called for a moratorium on tax cuts, saying the state needs to invest more in higher education to create good jobs and improve the economy.

At the time, Terrill said Boren's call for a moratorium on tax cuts was premature and that he believes Oklahoma's income tax is still too high.

David Blatt, public policy director for Tulsa's Community Action Project, an anti-poverty agency, said Oklahoma should not further reduce taxes and that cuts already approved will dramatically affect the state's ability to meet growing budgetary demands for health care, roads and bridges and public safety.

``State revenue growth is slowing even as the economy continues to do well,'' Blatt said. ``We're already feeling the squeeze before the tax cuts are implemented.''

Blatt said Oklahoma is a low-tax state, ranking 45th in the amount Oklahomans pay in state and local taxes per capita. The state also ranks last in the nation in per capita state and local government spending and state workers are 49th in the nation in average annual earnings.

Echoing Boren's comments, Blatt urged lawmakers to invest more in public services. But if lawmakers cut taxes further, Blatt said they should consider lifting some of the 430 exemptions the Legislature has granted to various professional groups and service providers on the payment of sales taxes.

``There is a trade-off between adequacy and equity,'' Blatt said.

Another analyst, Phil Kerpen, director of policy for Americans for Prosperity, said Oklahoma faces a serious economic growth deficit in comparison to states surrounding it and suggested that the state's tax structure may be to blame.

``Something in the policy mix clearly can be improved,'' Kerpen said. ``The relationship between lower taxes and higher economic growth is one of the most proven relationships in all of economics.''

Oklahoma's 6% corporate tax rate on top of a 35% federal rate creates a combined 41% corporate tax rate on companies doing business in the state, he said. When you add the state franchise tax, there is a 43% effective tax rate on Oklahoma companies.

``If Oklahoma is going to compete in the global economy and succeed, you need to look at much lower tax rates,'' Kerpen said.