Rep. David Dank brings critical eye to bear on tax credits, incentives
By Patrick B. McGuigan
By Patrick B. McGuigan
State Rep. David Dank, an Oklahoma City Republican, is leading a critical examination of tax credits, exemptions and other business incentives in the 2011 session of the State Legislature, which begins Monday, February 7.
In his capacity as Chairman of the Revenue and Taxation Subcommittee, he answered a quartet of questions from CapitolBeatOK this week.
The perspective he brings to the issue is, he says, nuanced: “There is a place for incentives and even tax credits when the jobs those incentives would create are substantial. New jobs return more revenue to the state through added payroll, and they especially help our economy grow. But too many tax credits enacted in the past failed to pass that test. Some were simply giveaways.
“We need to ask a couple of fundamental questions about any tax credit. Will it create or sustain added jobs? And is it fair to everyone involved, especially the taxpayers, who are the ones footing the bill? That means we need to halt the practice of issuing transferable tax credits in particular. A legitimate tax credit should benefit only the industry it was supposed to help and not be bought and sold like securities or commodities.”
Concerning the role of the State Chamber of other groups that have relied on such programs to promote economic development, Rep. Dank told CapitolBeatOK, “There will be no conflict if these programs are really being used to create jobs and promote economic growth, which is a primary goal of business. But if chambers and other business groups oppose reform because they are simply trying to protect one or more of their members who are receiving an unjustified tax credit, we may well have a conflict.
“Fortunately a recent Attorney General’s opinion on this issue set forth some pretty rigorous standards for issuing tax credits that are legal and constitutional. I think it will take care of any future disagreements.”
Concerning that opinion from former Attorney General Drew Edmondson, Dank early last month told CapitolBeatOK, “It is apparent from that opinion that some of the tax credits currently on the books are unconstitutional. We are going to go after those first, and then examine every other tax credit to see if it is actually doing what it promised.”
Concerning the amount of taxpayer money that might be wrapped up in wasteful or ineffective credits, exemptions and incentives of the past, he reflected, “In 2008 alone the State of Oklahoma granted $220 million in tax credits, with almost no accountability or oversight. If just half of those were questionable, that’s enough to take up a good percentage of the budget shortfall facing us this year. By any accounting, we are talking about hundreds of millions of taxpayer dollars each year.”
Of equal importance in Dank’s mind is his effort to examine Oklahoma’s high income tax rates, with prospect for addressing the challenge in the next couple of years. He said, “We started reforming our personal income tax under Governor Keating, and so far we have succeeded in reducing the top rate, which almost everyone pays, from seven to 5.25 percent if the newest reduction is allowed to kick in this year. That means we are still 5.25 percent more expensive than Texas.
“Happily we have a task force in place that is going to look at future income tax reductions. My personal preference would be to eliminate the state personal income tax entirely and replace it with consumption taxes on items other than groceries and prescription drugs, where everyone pays a fair share based on what they buy. The more money people have, the more they spend.
“It may be that we will approach that with gradual year-by-year reductions. The House staff will be running the numbers and looking at every possible scenario to see how we can reduce or eliminate the income tax and continue to fund government at an appropriate level.
“Either way I am encouraged by a renewed willingness on the part of both the legislative and executive branches to take a hard look at the negative impact the income tax places on our competitiveness as a state.”
Today (Thursday, February 3), the Oklahoma Council of Public Affairs issued an alternative budget that included reduction of state income tax rates to 4.25 percent.
Dank said he respects Governor Mary Fallin’s Commerce Secretary-designate Dave Lopez. In an interview on January 28, Lopez expressed long-standing respect for Rep. Dank. He told CapitolBeatOK:
“I know David and understand the passion he brings to assuring these programs are run right. I believe a good job can be done of measuring the effectiveness of those programs, and we should ask for the counsel of the best programs and businesses in the private sector on how to do it.”
Asked how much room he feels there is for improvement in the various incentives, Lopez reflected, “I know too little to comment much, but I do believe that circumstances change, just as times change. That means that some programs appropriate to another era might not still be the best ideas for here and now. Factors in what successfully leverages business interest in your state, or investment, evolve over time. What works in one era may not work in another time.”
Lopez continued, “There is information on ‘best practices’ and that should be our guide. The kind of budget review and program review that is under way may be something we need to do not only in tough times like these, but all the time. A careful review is something we might want to do all the time, as a state.”
He reflected, “It’s way too early for me to say too much about any recommendations I might make for changes, or for retaining aspects of the programs. I will say that I am glad David Dank plans to work hard on this. I believe both he and the folks at the Chambers [of Commerce] are serious and want to do the right thing.”