Eliminating the Income Tax Enables Property Tax Reform

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 Government Needs A Performance Audit

One of the most important components of this year’s House government modernization effort will involve acting on a request from State Auditor Gary Jones.

Jones has requested the Legislature to take action and allow his office to establish a performance audits division that could conduct a series of performance audits of state government entities during each year.

The proposal would allow the people of Oklahoma to vote next November to place this proposal into the Oklahoma Constitution.

It is important for the proposal to be approved as a constitutional amendment to ensure the performance audits remain free from political interference (legislators can not amend the Constitution). Thorough performance audits may make many politicians very uncomfortable as they will tend to shine the light of day on the failure of state government to perform efficiently. I also suspect they will reveal a large number of state government processes that are highly vulnerable to corruption.

Currently, the Auditor can conduct these audits at the request of the Governor, the Legislature, or the head of an agency. As you might image, it is highly unlikely agency officials from a poorly performing agency would ever request the Auditor to audit their agency.

Earlier this year, Governor Fallin authorized a performance audit of the state-owned Grand River Dam Authority. That audit was released last week and brought to light a number of concerning details questioning the method by which millions of dollars were being spent. Specifically, the audit found a volatile environment exists within the GRDA thus increasing exposure to fraud, waste and abuse. If you are inclined to peruse audit documents, the entire document can be read at hd31.org/185.

The Auditor’s proposal would not only give the Auditor the authority to audit an agency but would also provide the funding mechanism to conduct the audits. This would enable the Auditor’s office to conduct a series of performance audits each year instead of just the occasional audit at the request of a public official. It would also give them a dependable revenue stream for conducting several audits at one time.

These audits would serve as the inspiration for legislation that I believe would result in significant savings to the taxpayers. The direct savings would no doubt be many times higher than the cost of the audit. The indirect savings would also be significant as I believe state officials would modify their agency’s procedures to eliminate inefficiencies due to the fact that they could be audited at any time. I have no doubt, that the implementation of these audits and ensuing legislation will prove transformative to state government.

This bill will be filed soon and I hope and believe it will be approved by the Legislature and subsequently the voters.

Open Government Laws Should Apply To Legislature

Last year, I filed Legislation that would apply Oklahoma’s open meetings and records laws to the Legislature. As you are probably aware, these are the important laws designed to ensure that transparency follows the taxpayer dollar. Whenever the government spends your money, these laws are supposed to provide you with access to the documents and meetings affecting the decision to spend your money. Over the years, these transparency laws have evolved to become an important part of the ethics that govern the actions of government.

However, when the Oklahoma Legislature passed Oklahoma’s open records and meeting laws, they also exempted the Legislature from those laws. In other words, the laws that apply to Oklahoma governments don’t apply to the most important part of Oklahoma government.

I know it is only a matter of time before this law is applied to the Legislature as well. The hypocrisy of the unequal application is too apparent to be defended by even the most determined advocates of the status quo.

This summer, House Speaker Kris Steele approved an interim study of this proposal, and assigned the study to the Government Modernization Committee. The committee heard testimony of the law’s successful application in other states. I appreciated the fact that the Speaker allowed this study to take place. Speaker Steele has made it clear that he desires to continue opening up the legislative process and values the discussion about the law’s potential passage. I believe the time is right to continue advancing the measure, and I look forward to spending time developing and advocating the proposal during the upcoming session.

In the upcoming weeks I plan to write more about this bill and also intend to describe the next generation of government modernization legalization as it is introduced.

One of the most important modernization initiatives will not occur through the implementation of a single bill, but will take place during the appropriations and budget process.

You may recall my description of the millions of dollars set to be saved because of the state’s Information Technology consolidation effort. This is the year when those savings should be realized through the appropriations process. It will be vital for our appropriations officials to understand the many nuances of the consolidation so that agencies truly realize the savings.

The recent appointment of Edmond Senator Clark Jolley to Chair the Senate A&B Committee greatly enhances the chances of the successful realization of the savings. Jolly has been the Senator author of nearly every piece of government modernization, including the multi-million dollar savings from the consolidation of inefficient IT processes. Because of Jolley's knowledge of best practices and due to his role as A&B Chairman, he is in the perfect position to realize the savings on behalf of taxpayers.

I don’t doubt that some agencies will try to get an exemption from the reform by opposing the realization of the savings. Holding the line and realizing the savings will be an important component of the effort to shrink the size of government.