Last week I wrote about the recently released plan from the Oklahoma Council of Public Affairs and former Reagan economic advisor Arthur Laffer (the author of the Laffer Curve). The plan shows the positive economic impact that Oklahoma would experience if the state’s progressive income tax were to be phased out over the next ten years.
The plan opines that by phasing out the tax in steps the state could incorporate the benefits of the resulting positive economic impact into the state budget and thus not have to resort to increasing any other tax to make up for the loss of revenue.
This point is especially important. I have found that the number one reason some fear the elimination of the income tax is due to their even stronger dislike of the property tax. Senior citizens especially dislike the property tax because it threatens to force them out of the home they have worked all their lives to pay off.
This fear can usually be traced to the fact that Texas has high property tax rates. Whenever someone mentions the fact that Texas has no state income tax, the comment is invariably followed by someone else describing Texas’ less-than-friendly property tax policy.
I have always been a big believer in omnibus property tax reform. In the past, I have written about how this could be accomplished through the implementation of parental choice and education reform. I intend to write more about this in the future.
I also believe that another component of property tax reform and reducing property tax rates can be accomplished by eliminating the state income tax.
In Oklahoma, state government does not have a statewide property tax. The property tax is collected at the county level where it is mostly distributed to schools and career techs, with a small percent going to county government. Local governments also sometimes use the property tax to fund the creation of real property capital assets such as new buildings.
So how does the elimination of the income tax assist with property tax reform?
According to the OCPA study, the elimination of the state income tax would result in significant amounts increased economic activity. This activity would increase the income of Oklahomans by nearly 50 billion dollars. When this money is spent, sales tax collections would increase local government revenue by 3.5 billion dollars. With the increased sales tax collections, fewer local governments would need to ask for property tax increases to build their real property assets.
In fact, it may be possible for policy makers to capture some of this increased revenue by creating a property tax rebate fund and channeling some of the new growth income into the fund. The fund could be used to rebate property tax income to counties and schools as a result of new decreased property tax rates.
A rising tide lifts all boats. When the government has the courage to use tax reform to allow its citizens to keep their money, that money will be used to provide jobs and economic activity. This expands the tax base and makes even more tax reform possible.
Eliminating the income tax should be viewed as an important step in the effort to reduce property tax rates.
State Representative Jason Murphey
2300 North Lincoln Blvd
Oklahoma City, OK 73105
1(405) 557-735 (Office)