While Oklahoma Governor Brad Henry has signed a $5.3 billion spending bill that appropriates funds for the fiscal year beginning July 1, the tax and spending outlook in Oklahoma City is not yet clear. According to the Associated Press, Henry “said much budget work was still left for lawmakers” to finish.
Taxpayer groups say Henry, a Democrat, is sending mixed messages.
Henry has said, for example, that “The money for important programs is there. It’s just a matter of setting priorities and shifting funds to meet them. Legislative leaders have committed to do that, and I will work with them to make sure all of our objectives are realized.” At the same time, however, Henry is proposing significant tax increases.
The spending bill Henry approved counts on a tax and revenue increase of $201 million. On March 8, he signed legislation that authorizes expanded gaming at Blue Ribbon Downs in Sallisaw, Remington Park in Oklahoma City, and Will Rogers Downs in Claremore. According to the thoroughbred industry, the new law could raise $71 million for Oklahoma’s upcoming budget. Henry hopes to generate the rest from a massive cigarette tax increase.
Taxpayer Groups Protest
Taxpayer advocates have criticized Henry’s tax increase approach.
Karen Kerrigan, chairman of the Washington, DC-based Small Business Survival Committee, points to the negative implications for Oklahoma’s business community. She thinks the tax hike will ultimately backfire. “Small retailers will be hurt by the tax, which means less revenue for the state. Increasing the tobacco tax will simply perpetuate the vicious tax-and-spend cycle that has many states in a bind. Once revenues generated by the tax increase fail to live up to projected levels, small businesses will be targeted again with another misguided tax hike plan.”
Taxpayer groups also challenge the rhetoric resorted to by advocates of higher taxes. Says John Berthoud, president of the National Taxpayers Union: “They always try to claim that the money raised from higher tobacco levies is not what they want–allegedly, they are raising tobacco taxes because they want to ‘discourage tobacco use.'” Henry has said the tobacco tax increase would fund a vaguely defined “health initiative.”
Noted Berthoud, “This fable is proven false every time as the politicos–just as they have in Oklahoma–always come up with grand, heart-tugging schemes to spend their new-found loot.”
While Henry appears to believe a tax hike is the only way to address the state’s fiscal needs, other states have closed budget holes without raising taxes. Colorado, Hawaii, Massachusetts, Minnesota, New Hampshire, and Texas have found alternative solutions to restore fiscal sanity to their budgets. By identifying unnecessary programs and reining in spending, Gov. Rick Perry of Texas was able to shrink the budget below the previous year’s level.
The taxpayer advocacy groups contend the underlying reasons for the state’s budget woes are clear–and not addressed by the governor’s proposal. “Hiking tobacco taxes as a fix to Oklahoma’s budget woes is a harmful solution that does not address the underlying budget problem–uncontrollable spending,” explained Kerrigan.
Nationwide, most states spent lavishly during the boom years of the 1990s. Oklahoma was no exception. “After adjusting for inflation and population, spending at the state level increased by significant amounts in recent years,” noted economist Raymond J. Keating in a 2003 publication of the Oklahoma Council for Public Affairs. “For example, from 1992 to 2000, per-capita state total expenditures in Oklahoma increased by 19.5 percent, while inflation over the same period registered 16.4 percent,” he wrote.
As the nation’s economy slumped and state government revenues fell, policymakers across the country found themselves unable to meet the spending commitments they had made when coffers were overflowing. For the past few years, states have had to choose between cutting spending to sustainable levels or raising additional revenues with new and increased taxes.
When asked how they would want their elected representatives to address budget shortfalls, voters in state after state have urged spending restraint.
In Virginia and Oregon more than a year ago, tax increases were defeated at the ballot. Last summer, Alabama voters rejected Gov. Bob Riley’s tax hikes by a 68 to 32 percent vote. California Gov. Gray Davis was recalled for overspending and tripling the car tax. And just a few weeks ago, Oregon voters rejected another tax increase proposal by a vote of 60 to 40 percent. Petition drives are currently underway to repeal tax hikes in Nevada and Ohio.
“Gov. Henry is proposing tax increases at his own risk,” warned Grover Norquist, president of Americans for Tax Reform (ATR).
Message Is Mixed
Henry’s advocacy of certain tax cuts has muddied the waters of tax policy in Oklahoma, leaving many to wonder whether a coherent policy can emerge. According to the governor’s Web site, Henry favors the elimination of all capital gains taxes on Oklahoma-based property, permanent reduction of Oklahoma’s top income tax rate to 6.65 percent (from 7 percent), and expansion of income tax relief on pension and IRA distributions for retirees.
Those measures, however, are not enough to offset his proposed tax increases, noted ATR’s Norquist.
“If Gov. Henry looks to the example of President Bush and sees the benefit of cutting tax rates, why is he stopping at such small cuts? If he believes health programs should be paid for by tobacco taxes, and if he believes that capital gains and income tax cuts are good for Oklahoma, then he should expand the tax cuts to offset fully the tobacco tax hikes he is pushing.
“If he refuses to do so,” Norquist concluded, “he is demonstrating that he really just wants more money to spend.”
Sandra Fabry is an associate for state government affairs, and Paul Prososki is state government affairs manager, with Americans for Tax Reform. Their email addresses are [email protected] and [email protected], respectively.