Tax Justice Digest stories about Oklahoma

Despite their obvious unfairness, tax amnesties are a tool frequently used by states during tough budgetary times.  By waiving late fees and sometimes reducing the interest rate charged on overdue taxes, state policymakers can provide their state with a quick band-aid fix without having to make the much harder choice of raising taxes or cutting valued services.  But penalizing similar taxpayers at different rates dependent only upon whether they decide to pay up during an amnesty period is plainly unfair.  The problems associated with amnesties become even worse, however, as soon as a state establishes a habit of repeatedly offering amnesties during tough economic times.

With the possibility of another amnesty always on the horizon, delinquent taxpayers will think twice before settling their debts with the state during normal times, and at normal penalty rates.  Creating multiple sets of penalties (one for normal times, and one, lower penalty when budgets shortfalls are projected) therefore reduces fairness by penalizing similar taxpayers differently based only on the timing of their payment, and can also reduce the effectiveness of enforcement efforts and the tax system broadly.  These effects can continue long after the most recent amnesty period ends.  (Note that this is very similar to the argument against allowing corporations to "repatriate" their profits to the U.S. at a lower rate, a proposal which was recently rejected at the federal level).

Despite the obvious problems, Maryland and New Mexico are both considering legislation to once again provide temporary tax amnesty programs some time in the coming months.  New Mexico last provided an amnesty less than a decade ago, while Maryland's last amnesty came in 2001.  After that 2001 amnesty, the Maryland comptroller's office noted that "repeated use of amnesties is likely to create cynicism among law-abiding taxpayers, and lessen the need for voluntary compliance with state tax laws, which is vital for our system of taxation".  Should another amnesty be offered less than a decade after the 2001 amnesty, growth in taxpayer cynicism seems unavoidable, especially in light of the fact that a similar program offered in 1987 in the state was billed as a "once-in-a-lifetime" opportunity for delinquent payers.

Without a doubt, the momentum in favor of such programs is strong.  Alabama is already in the mist of an amnesty period (the state last offered an amnesty in 1984).  Massachusetts is currently in the process of deciding upon a date for its amnesty program (Massachusetts last provided amnesty in 2003).  Connecticut's program is already slated to take effect on May 1st (Connecticut's last amnesty took place in 2002).  And Oklahoma just recently closed its most recent amnesty period, just seven years after its 2002 amnesty.

In this environment, it is extremely important for state policymakers to not only oppose more amnesties, but also to convincingly state that another amnesty will not be offered any time in the near future.  For states looking to responsibly close their tax gaps, stepping-up enforcement spending is often a route that can produce sizeable returns, and is undoubtedly much more fair than trying to get something for nothing by arbitrarily waiving penalties in an effort to boost voluntary "compliance".  For more specific alternatives to the tax amnesty approach, take a look at these recent enforcement recommendations from Oregon's Department of Revenue.

The cut in the top rate was actually adopted several years ago, but was made contingent on state revenues meeting a target to ensure that the state could afford the tax cut. So, back then, lawmakers recognized that this tax cut would be expensive (though they ignored the fact that it is entirely regressive) and took steps to ensure the state could afford it. But now the state is not meeting that revenue target, the Senate Finance Committee wants to remove it and allow the tax cut to be implemented anyway. Will lawmakers actually approve this tax cut now that it is (by their own measure) unaffordable?

Similar questions could be posed about exempting groceries from the sales tax.  To be sure, taxing those purchases is quite regressive, but Oklahoma has in place an income tax credit designed to mitigate the impact this policy has on low-income taxpayers.  Since Oklahoma clearly can't afford a loss of tax revenue of this magnitude, why not build upon the income tax credit that's already in place -- an approach that would be less expensive and better targeted to those who need it the most?   The Oklahoma Policy Institute has the details on this alternative means of helping Oklahomans struggling to make ends meet.

With the fall elections a scant two months away, it’s never too early to think about the harsh realities and difficult choices that state lawmakers will face once they are sworn in. 

As two new fact sheets from the Oklahoma Policy Institute suggest, top on the agenda of Sooner State legislators should be the reconsideration of some of the tax cuts enacted between 2004 and 2006.  For instance, reductions in the top personal income tax rate put in place over the past several years have delivered an average tax cut in excess of $11,000 per year for the richest 1 percent of Oklahomans, yet have helped to suppress income tax collections to the point where they have grown by less than half a percentage point each year over the last two fiscal years.  As OK Policy observes, those tax dollars, rather than flowing back to the wealthy few, could be devoted to critical public purposes, such as “addressing critical staffing shortages in [Oklahoma’s] child welfare and correctional systems.”

This week the Community Action Project blasted the decision by Oklahoma policy makers to use a temporary surge in revenue to justify permanent, unfair tax cuts. CAP says that when voting on the tax cut proposals, legislators did so "knowing only the short-term fiscal impact and without the information that could allow them to evaluate the long-term fiscal sustainability of their choices." The question before legislators now is whether or not to repeal the tax cuts that were scheduled to take place in 2008. Last fall, the Center on Budget and Policy Priorities published a study which takes a closer look at specific states that enacted tax cuts in 2006 and highlights the potential damages from "tax cuts on layaway."

Kiplinger reports that business are expected "to mount pitched battles to defeat" TABOR-esque spending tax cap initiatives in Maine, Michigan, Montana, Nebraska, Nevada, and Oregon. In fact, there's a concerted effort forming in Oklahoma that is actually being lead by business groups. The Chairman of Tulsa's Chamber of Commerce was even quoted as saying that TABOR would be a "train wreck" for Oklahoma.