Revenue Solutions for the Big ol’ Hole!

by | March 7th, 2017

Like Will Rogers said “When you find yourself in a hole, stop digging!”.  Well, we are in a big ol’ hole because the state budget has been cut almost 15 percent over the past decade when adjusted for inflation — or more than $1.1 billion per year. Many agencies now receive 20 to 40 percent less than prior to the Great Recession. How about we stop digging and build a ladder?

Below are seven rungs that could fit on that ladder. Want more info? Download OK Policy’s revenue options factsheet.

  1. Reduce tax breaks for the oil and gas industry
  2. Assess a high-income surcharge.
  3. Increase the cigarette tax.
  4. End the capital gains exemption. 
  5. Adopt combined corporate reporting.
  6. Increase the fuel tax.
  7. Improve collection of Internet sales taxes.

Recurring Revenue Options:

  1. Reduce tax breaks for the oil and gas industry. Oil and Gas has been an important part of our economy and will continue to be so for some time. So we should ask them to pay their fair share of taxes! Oklahoma traditionally has taxed oil and gas production at 7 percent with various exceptions. But in 2014, the Legislature voted to tax almost all production at 2 percent for 36 months. That is well below the tax rates in other energy-producing states. It doesn’t make sense, and we can’t afford it! This tax break is expected to cost the state $370 million in FY 2018. Instead, the oil and gas gross production tax rate on new production could be raised to 4 percent when prices are low and back to 7 percent when prices are higher. This would have a limited impact while the industry is down, but it would be a serious revenue increase over time [REVENUE: ~$40M].
  2. Assess a high-income surcharge. Don’t let anyone convince you that our budget hole is only about the cost of oil. Oklahoma has cut the top income rate from 6.65 percent to 5 percent since 2004. These cuts have contributed to chronic budget shortfalls by reducing annual revenue by over $1 billion. We can’t afford that! A large majority of the benefit has gone to the highest-income households. Oklahoma could assess a surcharge of 6 percent on income over $200,000 ($100,000 for single individuals) and 7 percent on income over $400,000 ($200,000 for singles). This would be a great way to improve our home state and only 3 percent of households would be affected by the surcharge. Even after this change, all households would still be paying less income taxes than before our legislators passed these recent tax cuts [REVENUE: $204M].
  3. Increase the cigarette tax. I know some folks don’t like this because it is regressive, but you know what is more regressive? Closing rural hospitals, cutting programs at DHS, and making it harder for people to get the care they need, that’s what. Last session legislators came close to raising the tax on cigarettes to $2.53 from $1.03 per package. This option is on the table again. It is ON THE TABLE, so let’s not let the “perfect get in the way of the good.” Revenue from a cigarette tax increase could be dedicated for health care services to reverse past cuts and avert further ones, and it will make people healthier to boot!  [REVENUE: $258M, according to Gov. Fallin’s FY ‘18 budget proposal].
  4. End the capital gains exemption.  Oklahoma allows a 100 percent income tax deduction on capital gains from the sale of property located in Oklahoma or the sale of stock of a company headquartered in Oklahoma. The tax break, which primarily benefits taxpayers making over $1 million annually, is of questionable economic benefit and could also violate the Commerce Clause of the U.S. Constitution. Do we really need to have more ways that we may be violating the Constitution in this state? I don’t know about y’all, but I am sick of making national headlines for the wrong reasons. [REVENUE: $105M]
  5. Adopt combined corporate reporting. Hey there! Do you like loopholes that allow some folks to skip paying their fair share?  Yeah, me neither. Some multi-state corporations shift income to out-of-state subsidiaries to escape state tax liability. We don’t have to do it this way. Most states with a corporate income tax have adopted an effective and well-established reform known as combined corporate reporting that halts this tax avoidance strategy and ensures that multi-state corporations pay their fair share of taxes, just like local businesses.  Let’s level the playing field so all businesses can have a framework that allows them to be the best corporate citizens they can be. [REVENUE: ~ $20M – $60M]
  6. Increase the fuel tax. Oklahoma has among the LOWEST fuel taxes in the nation (17¢ per gallon for gas and 14¢ per gallon for diesel), because we’ve just kinda skipped over adjusting it since 1987. Some of y’all reading this weren’t even born then!  Since that time the fuel tax has lost nearly half its value to inflation. Fuel tax increases could be pegged to be in effect only when gas prices are low. This would offset the loss in gross production taxes that Oklahoma experiences during times of low oil and gas prices. Nifty, right? [REVENUE: $135M for 5¢ increase of gasoline and diesel tax; $220M for Gov. Fallin’s recommendation to increase both gas and diesel tax to 24¢ per gallon].
  7. Improve collection of Internet sales taxes. One of the BIG reasons we’ve had so many folks working on getting Oklahomans to “Buy Local” is because states are hampered from collecting taxes on sales from retailers that lack a physical presence in their state – even though the tax is owed. Internet sales don’t have to hurt our mom-and-pop main-street shops but they are! Last year lawmakers passed a bill (HB 2531) that included a broader definition of who maintains a place of business in the state and also required remote retailers to send customers an annual statement listing their purchase. Oklahoma could now follow the lead of Colorado and Louisiana by also requiring remote retailers to notify the Tax Commission of their customers’ aggregate sales, which would boost compliance. [REVENUE: Unknown]

You know it and I know it. Oklahoma is once again facing a massive budget shortfall (aka the big ol’ hole). According to preliminary estimates, lawmakers will have about $740 million less for next year’s budget than what they appropriated this year. It doesn’t have to be that way but this is what they’ve set in motion so far. The state budget has already been cut almost 15 percent over the past decade when adjusted for inflation — for a total spending reduction of more than $1.1 billion per year. Many agencies now receive 20 to 40 percent less than prior to the Great Recession. Don’t let anyone seduce you with their siren song about wasteful government.  If they come a crooning, hit pause and ask them “Would you rather we quit having our Health Departments inspect restaurants for rats or just let all those school-less kiddos loose in the Capitol for a little up-close and personal Civics 101 ? “

The state needs more revenue! We’ve got to avoid more devastating cuts, to ensure fair pay for our teachers and state employees, to close gaps in mental health and substance abuse treatment, and to address critical staffing shortages in our corrections facilities, and the list of urgent needs goes on and on. As Oklahoma’s Finance Secretary Preston Doerflinger has said, “We are not cutting our way out of this budget hole. We have to have a serious conversation about revenue in this state.” He is right about that and there NO reason to expect that your legislators will know that unless you and your fellow constituents confirm that they’ve heard about these options loud and clear!

Four things you can do about it:

  1. Contact your two legislators about the revenue options and get other folks to join you!
  2. Share this TOK Blog Post about the revenues. 
  3. Join the Together Oklahoma teams that are working on events, communications, outreach, and research about the revenues by filling out this little membership form
  4. Check our calendar of community events, attend and event, and talk about the revenues!

Now, you have in hand your broad menu of revenue options that are worth considering to ensure a better budget and a stronger economy that works for all! I’ve offered 4 things you can do and explained just how to get your legislators attention and who is on your team six ways from Sunday so please check out the Advocacy Tipsheets if you need a refresher.  Every single person in this state is counting on all of the rest of us to do the right thing.  Are you mad about this? GOOD. Set a good example and get out there spread the word!