Policy Documents

Research & Commentary: Oklahoma Income Tax Elimination

October 25, 2011

Lawmakers in Oklahoma are saying tax reform involving the reduction of personal income tax rates will be one of the top priorities this upcoming legislative session. The proposal likely would eliminate hundreds of tax credits, deductions, and subsidies in exchange for a broad-based rate reduction.

Proponents say the state is well positioned for gradual elimination of its personal income tax. Opponents say income taxes alone don’t drive businesses out of the state, and they claim a need for more tax revenue.

Nine states currently operate without a personal income tax. According to the fourth edition of Rich States, Poor States by the American Legislative Exchange Council, over the past decade these nine states “have, on average, seen gross state product increase by 61.23 percent, job growth increase by 7.78 percent, and population increase by 13.75 percent.”

It is important to ask whether a tax reform adheres to four essential principles of sound tax policy:

* Taxes should be applied to a broad base.

* They should be kept at or trimmed to a low, competitive rate.

* They should not distort economic choices.

* They should be transparent to taxpayers.

Eliminating deductions and credits in exchange for lowering personal income tax rates would move Oklahoma’s tax structure in line with each of these principles. It also would put the state on a path toward fully eliminating one of the most economically destructive taxes and make the state a more attractive place for jobs and high-quality workers.

The following documents provide additional information on the Oklahoma initiative and the burden of personal income taxes.

Rich States, Poor States (4th Edition)
http://www.alec.org/AM/pdf/tax/11rsps/RSPS_4thEdition1.pdf
The fourth edition of this publication from the American Legislative Exchange Council and authors Laffer, Moore, and Williams offers both individual-state and comparative accounts of the negative effects of income taxes.

Ten Principles of State Fiscal Policy
http://heartland.org/policy-documents/ten-principles-state-fiscal-policy
The Heartland Institute provides policymakers and civic and business leaders a highly condensed, easy-to-read guide to state fiscal policy principles. The principles range from “Above all else: Keep taxes low” to “Protect state employees from politics.”

Institute Brief—No Income Tax: The Key to Economic Growth
http://heartland.org/policy-documents/institute-brief-no-income-tax-key-economic-growth
This brief from the Public Interest Institute examines how states with no income tax are doing compared to those with income taxes: “Studies show that states without an income tax have greater economic growth rates than states with an income tax, including greater rates of income growth, population growth, and job growth, and are more attractive to businesses looking for locations to build or expand.”

Research & Commentary: The Best and Worst Ways to Eliminate a Budget Deficit
http://heartland.org/policy-documents/research-commentary-best-and-worst-ways-eliminate-budget-deficit
Heartland Institute Budget and Tax Legislative Specialist John Nothdurft identifies some of the most and least effective and economically advisable ways states use to trim their budget deficits.

State Budget Shortfalls Present a Tax Reform Opportunity
http://www.taxfoundation.org/publications/show/24321.html
The Tax Foundation demonstrates that states with tax codes relying on small tax bases are more susceptible to large budget deficits. Eliminating tax favors, lowering tax rates, and broadening tax bases lead to a more sustainable and economically appealing tax code, the report observes.

Taxing the Rich Will Bankrupt Your State
http://heartland.org/policy-documents/research-commentary-taxing-rich-will-bankrupt-your-state
John Nothdurft of The Heartland Institute explains the disadvantages and negative consequences of “millionaire” taxes and overtaxing the top income brackets.

For further information on this subject, visit the Budget & Tax News Web site at http://news.heartland.org/fiscal, The Heartland Institute’s Web site at www.heartland.org, or PolicyBot, Heartland’s free online research database, at www.policybot.org.

Nothing in this message is intended to influence the passage of legislation, and it does not necessarily represent the views of The Heartland Institute. If you have any questions about this issue or the Heartland Web site, contact Government Relations Director John Nothdurft at 312/377-4000 or jnothdurft@heartland.org.