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COLUMN: Tax cuts do not improve economy

by Evan DeFilippis | March 10, 2011 | 8 comments

Another Oklahoma income tax cut is expected to come into effect Jan. 1, 2012, despite evidence that strongly suggests the tax cut’s adverse impact on public services and income equality far outweigh its contrived benefits.

The initial justification for the cut was based on projections that state revenue would rise by 4 percent next year, but such optimistic projections failed to account for the recent recession and concomitant revenue shortfalls that Oklahoma has since suffered. The tax cut also was based tenuously on the speculation that a tax cut would stimulate growth—a specious assumption given the recession’s impact on demand.

What’s worse is this cut is merely a continuation in a series of income tax cuts that took place from 2004 to 2006, during which the top income tax rate was reduced from 6.65 to 5.5 percent. According to research by the Oklahoma Tax Commission, the lost revenues from these tax cuts in 2010 amount to $776.9 million, which is far greater than our current budget shortfall of $500 million.

According to analysis done by the Institute on Taxation and Economic Policy, these past tax cuts had little-to-no positive impact on economic growth and hurt economic sustainability by depriving the government of much needed revenue.

To be blunt, recent history has unequivocally demonstrated that previous income tax cuts have been woefully ineffective at stimulating economic growth, and have largely contributed to our current revenue crisis.

Unless legislation is enacted to stop it, an automatic trigger will reduce the top rate to 5.25 percent in 2012, thereby reducing state revenue another $120 million and seriously damaging economic recovery. So what justification could there be for pursuing another tax cut?

The impact of the 2004-2006 tax cuts should provide a litmus test for what we can expect if legislation is not passed to stop another tax cut from going into effect in 2012. In response to a 30-year revenue collection low, exacerbated by the insistence on cutting income taxes, the governor has approved of 10 percent monthly cuts to general revenue allocations for the rest of the year.

Consider the impact such drastic policy changes have already had on vital public services: school districts have completely eliminated programs, laid off productive teachers and cut staff; the Department of Mental Health and Substance Abuse Services has removed rehabilitation facilities for children with mental problems and adults with substance abuse issues; and the Office of Juvenile Affairs removed its gang prevention program.

So rather than raise income taxes on the wealthiest Oklahomans and thereby save programs that have an enormous impact on social welfare and economic sustainability, our solution is to instead cut income taxes to an even more egregious low — we already have one of the lowest income tax rates in the nation — and pray that history doesn’t repeat itself.

There is another reason to scrutinize the efficacy of an additional tax cut: its impact on income distribution. The top 20 percent of Oklahomans will receive 73 percent of the benefits, while the bottom 20 percent will receive nothing. Individuals making over $399,000 will receive nearly a third of the benefits.

We have a situation in which the most vulnerable Oklahoma citizens have to suffer even more so the super-rich can have a few more dollars in their pocket. The poor and middle classes are already bearing the disproportionate burden of financing public services. Given the regressive nature of state and local taxes, to demand a policy that exacerbates suffering for no reason other than greed is despicable.

There can be no “collective sacrifice” when state policies strategically target the very group that has already sacrificed enough.

— Evan DeFillipis, political science and economics junior

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localsooner 1 year, 2 months ago

Uh.....Texas property taxes are three to four times that of Oklahoma......

chas036 1 year, 2 months ago

Hey Evan, we need to tax the rich in OK even more, and distribute a lot more of that income to folks like me. I live in NYC now, but I would love to come back home to OK if I could get the same welfare benefits (income distribution)as I get in NY.

I quit my job 2 years ago because I got tired of supporting the welfare state, so I decided to join it. In NY, the government took 60% of my wages with federal, state, city, and county taxes. I just couldn't support my family anymore. Seeing how well off the "poor" were in NY, it just made more sense to go on welfare, than to work.

Now my wife and I, we don't work. We stay home and collect welfare, and we LOVE IT!!!! We love pople like you who want give us other peoples income so we can stay home.

The state gives us a 2 bedroom apt in a nice neigborhood. The complex has a gym , pool, park for the kids, security, free cable, and free wifi. This is more than I ever had when I had to work.

Even all our utilities are free. We can use all the utilities we want, and its all free from taxpayers like you. In NY, social services even gives us a cell phone to use with unlimited free local calls. God bless the liberals.

Welfare now pays for all my dental and medical needs, thanks to those generous people who work and pay taxes like you Evan. They even pay for my daughters braces. My wife just had our 3rd child last year, and everything was paid by the state. You just keep writing great articles like this and keep advocating giving us "poor" everything. We love you Evan!

Now that we have 3 children, we are eligible to get a bigger apartment with 3 bedrooms, and we also will get an increase in our food stamp allowance and an even bigger cash assaitance. My wife and I are now thinking on having a 4th and 5th child because we will then be eligible for a four bedroom apartment with two full baths. With every kid we have, we get a substantial increase in food stamps and cash assistance.

I love welfare. Its like having a credit card without worring about making payments. I can buy almost all the food and clothes we need. So far we have never run out of funds and we always have plenty of food in the frig. Matter of fact, I buy much more than what I need so I can sell it on the "black market" to get extra cash. Why not, it is all free, so why can't I sell it?

I look back at how hard I use to work, and for what? Now, that I am "poor", I don't have to get up every morning to go to work. I watch TV all day without a care in the world. I go to the gym in our complex and workout , I play with my kids in the pool and the park in our complex, I hang with my buddies(who also don't work). I love welfare! This is the life, and if you liberals want to keep giving me more for doing nothing, god bless you all. I won't refuse your generosity, especially at the expense of all those suckers who work hard and pay taxes. You liberals just keep advocating income distribution,,,,we love you Evan.

mjwb65 1 year, 2 months ago

So Oklahoma needs a higher income tax rate huh? How about a different radical idea: Eliminate the income tax. Look at how terrible states like Florida and Texas that have zero income tax are doing. There is also an element of social justice in eliminating the income tax, in that other consumption based taxes are therefore higher so those who are frugal with their money (presumably those with lower income) pay a proportionate amount of taxes to what they spend.

evandefilippis 1 year, 2 months ago

@Chas, do you just keep copying and pasting the same comment? I've read it three times on here and it was exceedingly stupid and inaccurate the first time I read it. Is your solution to do away with all forms of welfare?

There is a natural rate of unemployment in America-- it is roughly 5-6%, which means that at all times at least 5% of the labor force will be unemployed and will require some form of assistance if they wish to eat.
Corporations receive far greater welfare than poor people in the form of subsidies and tax breaks. Heritage Foundation found that 20 billion could be saved just be eliminating 3 types of corporate welfare.
The GAO did a survey of nearly 100 studies on welfare and found that it not a single case did welfare significantly reduce the desire to work. Handouts are not enough to compensate for all living expenses-- people can't enjoy being lazy when they can't be confident that they'll eat and be warm.
The largest group of people on welfare are poor white mothers. And the average person stays on welfare for 3 years.

Your obviously made up anecdote is inconsistent with averages and a basic understanding of statistics.

@mjw- both Florida and Texas have economic problems that are far more extensive than the national average, so I don't understand your point. And How would eliminating the income tax facilitate social justice? There are social inequalities now as a result of a system that favors corporations and the super-rich-- eliminating the income tax does nothing to help the most vulnerable in society get access to necessary public services and resources. And the tax system you propose (just taxing consumables), is regressive because poor people pay a higher percentage of their income on consumables, while wealthy are more likely to pay for services. Econ 101-- poor people have a higher marginal propensity to consume, so punishing that consumption via a tax would destroy the multiplier effect that happens throughout the economy.