Oklahoma Policy Institute speakers slam Laffer study, oppose income tax phase out

Oklahoma Policy Institute today (Thursday, April 5) hosted a two-hour seminar criticizing proposals to reduce or eliminate state income taxes. The event was dubbed, “Eliminating the Income Tax: Silver Bullet or Fools’ Gold.”

Several economists spoke to a large crowd of citizens, lobbyists, reporters, and government employees at the Oklahoma History Center. The group had fundamentally different views from those expressed at a state Capitol meeting (also held today) at which Joseph D. Henchman of the Tax Foundation spoke, along with the Kansas budget director and a Missouri tax reduction activist. 

Several legislators attended, including Democratic state Rep. Joe Dorman of Rush Springs, Emily Virgin of Norman, Richard Morrissette of Oklahoma City, and Justin McDaniel of southeastern Oklahoma’s District 1. State Auditor & Inspector Gary Jones, a Republican, also attended the meeting.  

Deidre D. Myers, an analyst with the Oklahoma Department of Commerce, presented data showing Oklahoma has the nation’s second best year-over-year growth rate, the best national manufacturing growth rate, the eleventh best unemployment rate, growth in per capita personal income, poverty issues, and challenges in economic attainment. 

The premise of the presentation by Dr. Kent Olson, Emeritus Economics professor at at Oklahoma State University, is that a phase out of the income tax would mean the state is “digging a deeper hole.” He posited, by the year 2032, a $2.6 billion state  budget deficit if an income tax phase out measure is enacted, a projected $4.8 billion in lost tax revenues, and spending cuts of 46 percent.

Dr. Jonathan Willmer, Economics and Finance Department Chairman at Oklahoma City University, assailed Dr. Arthur Laffer’s report as making use of “curious” dates, carefully selected facts, mixing data and data types, not asking relevant questions, having “omitted variables bias,” and other problems. 

Olson, Willmer and some of the other speakers repeatedly expressed disdain for the analysis of Laffer and members of his econometric firm in a study for the Oklahoma Council of Public Affairs (OCPA) last winter. During the question and answer period, Willmer said a mugging in Ukraine several years ago is an example of what happens when a country does not have a government.  

The University of Oklahoma’s Cynthia Rogers, contended research about the effect of tax policy on state economic growth is “inconclusive because of estimation difficulties.” Her analysis assumed local governments would replace lost stat funding with other sources. She also asserted the “tax mix” will shift in the state with “consequences for equity, stability” that would “impact competitiveness.” 

Dr. Rogers also projected net costs to low-income individuals. Although their income tax burden would be zero, her power point presentation concluded they would suffer from the loss of exemptions or credits.

Roy Williams of the Oklahoma City Chamber of Commerce said he had spoken with state leaders about what he fears would be negative effects of income tax cuts or a phase out on the Quality Jobs Program, which is linked to the income tax. Justin McLaughlin of the Tulsa Metro Chamber said, “The Quality Jobs Program going away is something that keeps me up at night.” He said he “never” hears or sees a personal income tax listed as a factor in economic relocation decisions. 

Other speakers included Dr. Alexander Holmes, University of Oklahoma, widely quoted as highly critical of the Laffer study. Holmes said the income tax phase out is ultimately “designed to shrink the size of government,” but that advocates are “not doing it in an intellectually honest way.” He asserted the primary motivation behind the study is to “starve the beast” – with “the beast” being government. 

David Blatt, director of OK Policy, welcomed attendees. In an interview with CapitolBeatOK after the event, Blatt said the conference had a “very clear, overwhelming message. We had four of the most distinguished economists in the state, and three of the economic developers. They were essentially unanimous in saying that cutting the income tax is not Oklahoma’s path to prosperity.”

In Blatt’s view, “they did a devastating job of showing that the report on which a lot of this is based, was based on poor science, and poor economics, and showing that what businesses are looking for is quality infrastructure, targeted incentives, a well-trained workforce. None of those goals would be improved by cutting the income tax. So, I don’t think there was an argument left standing for cutting the income tax for anyone who was here and heard these voices today.”

In the past, Blatt’s group has been critical of some incentive programs. Asked if he was concerned that it appears many or most might survive legislative scrutiny, he replied, “Well, we don’t know what’s going to happen to all of them. I think what we heard from the economic development people is that the Quality Jobs Program is especially important as a recruitment tool, and really does tie incentive payments to quality jobs. When you have a program that is funded entirely by the income tax revenues, eliminating the income tax or severely cutting the income tax is going to actually hurt limit our ability to participate in that program.

“There are some other incentive programs that definitely bear scrutiny. We’ve talked a lot about whether the now, $150 million a year – potentially $400 million a year — in drilling credits really makes sense.  That hasn’t really been on the table. That’s an area where they really need to be looking.”

Panel moderator Scott Meacham, former treasurer of Oklahoma, ended discussion and the OK Policy program with a rhetorical question, “How is this train going to be stopped, and who is going to be the adult in the room?”