Claims for Oklahoma Tax Cut Not OK
Yesterday’s Wall Street Journal editorial supporting a proposal by Oklahoma governor Mary Fallin to phase out the state’s income tax contains a slew of incorrect or misleading statements. For instance:
- The editorial wrongly asserts that states without income taxes have had stronger economic growth than other states, echoing a claim from a recent report from economist Arthur Laffer and the American Legislative Exchange Council. As we have explained:
- The editorial claims that states with relatively high income tax rates have faced the biggest budget shortfalls. That’s simply not true. Four of the nine states without an income tax — Nevada, New Hampshire, Texas, and Washington — have closed (or are closing) above-average shortfalls for the upcoming fiscal year, while some of the high-income-tax states that the editorial mentions, like Illinois and Maryland, had below-average shortfalls.
Also, the editorial’s boast that no-income-tax states “manage to balance their budget nearly every year” makes little sense, since all states except Vermont are required to balance their budgets.
- The editorial cites Governor Fallin’s warning that Oklahoma is about to become an “income tax sandwich” as neighboring states consider eliminating their income taxes. It’s true that anti-tax activists have been promoting income tax repeal in Kansas and Missouri for years. But they haven’t succeeded. In fact, Governor Fallin’s proposal would make Oklahoma the only state ever besides oil-rich Alaska to repeal its income tax.
A key flaw in the Laffer analysis is that all of its measures of “economic growth” are really just measures of population growth. As a state’s population grows, you would expect its total number of jobs and its total economic output to grow with it. But, that’s not the same thing as a state’s per-capita performance.
A study from the Institute on Taxation and Economic Policy shows that residents of states with relatively high income tax rates are doing as well, if not better, than residents of states lacking a personal income tax in terms of per-capita economic output and household income.
The editorial correctly notes that many of Oklahoma’s leading economists have challenged claims that eliminating the income tax would help the economy. But it wrongly suggests that non-economists feel differently. A recent survey found that Oklahomans oppose the tax cut by a 42-35 percent margin, partly because they overwhelmingly view an educated, well-trained workforce as more important than low taxes — and a state that lacks income tax revenue will find it harder to find the resources to educate its own people.