Economy & Jobs

OCPA Seeking to Vanquish Oklahoma’s “Income-Tax Sandwich”

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In 2012, Governor Mary Fallin said she didn’t want her state of Oklahoma to become an “income-tax sandwich.” Unfortunately, it has. To the south lies no-income-tax Texas, and to the north is low-tax Kansas. For years, families, corporations, and entrepreneurs have been exiting the state and heading to Texas to enhance their financial well-being. Now this trend may expand to include an outflow to Kansas. The Oklahoma Council of Public Affairs (OCPA) is a nonprofit think tank that seeks to change this.

Influence on Oklahoma’s Economy

OCPA has spent more than 22 years analyzing Oklahoma public policy “from a perspective of limited government, individual liberty, and a free-market economy.” In-depth research, proactive recommendations, recruitment of leading scholars, media outreach, and legislator relationships have enabled this group to influence state policy. Its approach is similar to those utilized on a national level by think tanks such as The Heritage Foundation.

Oklahoma’s gradual income-tax reductions between 2005 and 2012 were the result of OCPA’s support, along with the persistent advocacy of former Governor Frank Keating (1995–2003) and the leadership of Oklahoma House Speaker Todd Hiett (the first Republican speaker since the 1920s). As these tax cuts were implemented, the state enjoyed an economic growth rate that exceeded those of the nation and the majority of its neighbors. State spending hit record highs for 12 consecutive years despite the reductions.

Dave Bond, CEO of OCPA Impact (an advocacy organization affiliated with OCPA), notes, “Except for two years during the recession, tax collections grew.” Revenue collections broached new highs in each of the past three fiscal years. Per-pupil spending in public schools has also reached record highs.

Loss of Oklahoma’s Competitive Edge

Now, with tax reform spreading across the region, Oklahoma is looking less attractive. Following Governor Sam Brownback’s 2012 tax cuts, Kansas’s previously higher tax rates dropped to below Oklahoma’s within just one year. Some Kansas small businesses now pay zero income tax. Combined with Texas’ no-income-tax policy, this dynamic is influencing where Oklahomans buy homes and choose to work—especially in border counties.

Migration threatens the state’s economic vitality. As Bond explains, “There’s a legacy of a brain drain in Oklahoma of educated talented workforce capital to Texas.” Numerous Fortune 1000 companies founded in Oklahoma have moved operations, often to Dallas or Houston. This includes Phillips Petroleum Company and Conoco, both Fortune 50 companies until recently; Noble Energy, which just finished a pullout; and Haliburton, which maintains only a minimal presence in Oklahoma.

“Most of my cousins, my generation, have left Oklahoma, and most of those who have left are in Texas today,” says Bond. “We continue to lose many of our best and brightest to Texas. Our losses to Texas and Florida have continued to increase even as we gain on net from across the country.”

Gradual Elimination of the Income Tax

OCPA’s solution, according to Bond, is to “responsibly eliminate the Oklahoma income tax over a period of time. A gradual elimination will avoid the necessity of raising other taxes in order to offset the change.” Bond reminds those who doubt this possibility that Oklahoma “got rid of one quarter of the income tax over the past decade,” adding, “we now have record government spending and revenue.”

Tax reductions can strengthen Oklahoma’s economy by drawing in families and businesses from surrounding states. It’s more than just that; growth is not a zero-sum game. Allowing income earners to save, spend, or invest more of their earnings creates a larger economy even if not one person enters the state from elsewhere. Taking steps to eliminate the Oklahoma income tax would do just that.