Patrick B. McGuigan
Joseph D. Henchman of the Tax Foundation told a gathering of state officials and tax analysts that this Sunday (April 8) will be Oklahoma’s “Tax Freedom Day.”
In an interview with CapitolBeatOK, Henchman said every state has unique characteristics, making him reluctant to designate a single model state when it comes to tax policy.
He reflected, “Every state is different, with different strengths and weaknesses. California has Hollywood, West Virginia has coal, Florida has sunshine, Oklahoma has energy. Their tax policies to some extent represent their strengths and their weaknesses. You could not apply New York City policies here in Oklahoma; you have to have an Oklahoma policy that best suits the state’s needs.”
Asked what he thinks of the income tax phase out proposed by OCPA and included in an econometric analysis by Dr. Arthur Laffer, Henchman commented, “Well, simpler is better. Simplification is something everybody should be for in tax policy. A system that focuses on raising revenue and not on changing behavior – on encouraging people to be productive, not on manipulating the tax code – is best.
“Of course, how it is paid for is an important question. Do you cut spending or find new revenue sources? It is important to keep in mind that you cannot deny the importance of competition among the states. When a business has a choice to make, between coming to Oklahoma or to Texas, what do you say to them when you want them to choose Oklahoma?”
In the latest Tax Foundation analysis, National Tax Freedom Day falls on April 17, 2012. CapitolBeatOK asked why Oklahoma had, among the 50 states, moved from 41st to 39th. Henchman replied, “A lot of that was driven by federal tax payments. Over time, the trend in all of the states has been they are sending more and more money to Washington, D.C.
“There was a blip in that trend due to the Recession, that is, less was going to D.C. But Oklahoma did comparatively better in terms of most economic factors, so a lot of your money still went to Washington, and your overall tax burden ranking increased.”
The interview concluded with a broader question of tax policy analysis: What do most people miss or not quite understand in looking at tax policy?
Henchman thought for a moment, then responded: “That is a really good question. I’ll answer this way. First, how much money do you want to raise? That requires asking what should government be doing, and what’s the priority or priorities in use of that money? You should ask how big should the state government be. That leads you to ask what should the state do, and what should the local governments do?
“Second, how do you raise tax money? There are different ways to raise a dollar of revenue. Some can be harmful. Some can be very beneficial in comparison to others. Economists by and large have the view that taxing investment and productivity, such as with an income tax, can be more harmful than taxing spending or consumption, such as with a sales or property tax.”
The foundation defines Tax Freedom Day as “that day that residents of that state have worked long enough to pay off all tax obligations at the federal, state and local levels.”
The foundation lays out its methodology as follows: “We count in the denominator every dollar that is officially part of national income according to the Department of Commerce’s Bureau of Economic Analysis, and in the numerator every payment to the government that is officially considered a tax is counted. Taxes at all levels of government are included, whether levied by Uncle Sam or state and local governments.
“In calculating Tax Freedom Day for each state, we look at taxes borne by residents of that state, whether paid to the federal government, their own state or local government, or governments of other states. Where possible, we allocate tax burdens to the taxpayer’s state of residence. Leap days are excluded to allow comparison across years, and any fraction of a day is rounded up to the next calendar day.”
For more information from Henchman’s organization, visit here:
Editor's Note: In addition to this exchange with Mr. Henchman, CapitolBeatOK conducted video interviews with David Blatt, Steven Anderson and Travis Brown. The exchange with Brown is posted with this story, or can be viewed on YouTube here ...