Blatt battles income tax reductions, builds Oklahoma Policy Institute

Because Oklahoma does not have enough college graduates, and faces challenges of crumbling infrastructure and abysmal public health outcomes – among other issues – David Blatt of the Oklahoma Policy Institute contends the state should not reduce state income taxes, let alone pursue elimination of the levy.

Blatt made his case against a tax cut and for restoration of government spending in a morning briefing for supporters of his group. The event was held at the Faculty House, a few blocks south of the state Capitol in Oklahoma City. 

Blatt pointed to economic development specialists who do not list income tax burdens as important factors in business relocation decisions. He said more significant factors include a high quality educational system, functioning and well-managed infrastructure (with an emphasis on roads and bridges), public safety and security (law enforcement), health care and health outcomes, and care for the most vulnerable persons in the state. 

The Tulsa-based analyst said during the Great Recession, “state revenues got hammered” – leading to an extended series of agency budget cuts and a jump in unemployment. Now that that state has completed nearly two years of revenue expansion, most growth revenue is being devoted to filling in revenue that helped in the last three years – federal stimulus funds, Rainy Day Funds and other one- or two-time gap-fillers. 

Although the state is doing much better than most, appropriated revenues are about 7 ½ percent below what they were three years ago – and some agencies have absorbed 20 percent reductions in appropriations, Blatt said.

The OK Policy director said he believed most legislators and state officials want to protect core services (which amount to about 90 percent of government spending, spread across 10 agencies). Although, “we are definitely seeing a rebound” in manufacturing job growth, job creation and other measures of economic success, many challenges remain. 

Blatt pointed to acceleration in projected costs for delayed payment of oil and gas tax credits (first estimated at $150 million over three years, but now projected at $297 million) as an example of commitments that will eat up revenue growth. His bottom line was that despite current tax revenue growth, state government will at best hold its own – filling in those non-recurring revenues but not seeing much real growth in available money.  

Continuing his exposition of anti-tax-cut ideas, Blatt said the state’s structural debt is such that tax cuts are unrealistic. He termed income tax phase out proposals as “intellectually dishonest and fiscally irresponsible.” He asserted, “The numbers don’t add up. You can’t do away with the largest state government income source and close the gap.” He predicted enactment of an income tax phase out would mean property taxes or sales taxes would significantly increase. 

Blatt asserted such tax cuts would, in any case, not help the state economy, adding “it’s not right to prioritize tax cuts over human needs.” He stressed that although President Ronald Reagan cut income taxes in 1981, he subsequently raised other taxes.

The state’s constitutional stricture known as State Question 640 – requiring a popular vote for any future tax hikes – means the state has a “one-way ratchet” on taxes. He says taxes, once eliminated, won’t return: “If you break this, you can’t fix it.” He said this distinguishes the situation facing Oklahoma from that Reagan guided in the 1980s.

Blatt expressed relief that what he deemed “the most radical” tax cut ideas seem to have lost momentum over the last two months, but said he hoped that lawmakers would decide not to cut income taxes at all – instead directing resources to “investment” in the state priorities he identified.

Since an early 2012 burst of pro-tax-cut enthusiasm, OK Policy has pressed – with policy papers, an afternoon seminar of economists early this month, speeches such as at Thursday’s event, and creation of a coalition called “Together Oklahoma,” among other steps – to oppose momentum for tax cuts in general, and for income tax reduction, in particular.