As the 2016 legislative session gets underway, the budget is at the forefront of everyone’s mind. As oil and gas prices continue to drop and the budget hole continues to grow, it’s widely recognized across the state that Oklahoma is now in the midst of a budget emergency. We had a budget shortfall of more than $600 million last year, and this year the projected shortage is estimated to break the $1 billion mark. This is crippling news for the state. Education, corrections, and other essential core services have been asked yet again to tighten their belts, and we have hit a critical point in state government.
A mid-year revenue failure was declared at the end of 2015 due to revenue collections being below projected levels and a second round of mid-year cuts may be necessary as well. The State Board of Equalization will announce its final budget certification later this month and while we’re already expecting a grim message, the true severity of the situation will become clear in the numbers.
This didn’t happen overnight. Years of relying on budget cuts and one-time revenue adjustments have made the current situation a dire reality and as a result, we’re now likely going to see the fallout in terms of more services being cut, jobs lost and other consequences of years of fiscal inattention. Critical and core services have already been repeatedly scaled back, which has triggered a domino effect in terms of teacher shortages, larger class sizes, increased tuition and fees, as well as inadequately staffed schools and longer waiting lists for crucial services. This cycle has created an on-going budget hole that continues to grow larger over time.
This is the time to buckle down and assess all the options on the table and seek true reform and solutions. The obvious starting point would be to repeal the most recent income tax. Oklahoma has cut income tax by more than $1 billion since 2004, which also includes the most recent 0.25 percent cut that reduces state revenue by about $147 million that was enacted in January. This cut doesn’t save the average Oklahoma taxpayer more than a few dollars and it’s just adding another layer to the depth of the shortfall this year.
Another area we could look at is combined corporate reporting. Many multi-state corporations shift their income to their out of state subsidiaries to sidestep the state tax liability. Other states have adopted laws to stop companies from shirking their obligation to pay taxes just like local business owners and there’s no reason Oklahoma shouldn’t consider doing the same.
With online retailers staking a solid claim in today’s marketplace, there is substantial tax revenue being lost to e-commerce when someone makes a purchase online and the retailer isn’t required to collect sales tax. We could explore this avenue to reassess the system and ensure online retailers collect and pay state taxes on goods sold in Oklahoma. Many other states have already enacted similar laws to boost collections from online businesses so the precedent is already set if we choose to consider this further.
Another option that could be up for discussion is the elimination of the double deduction of state and federal income taxes. Most people may not realize our state is only one of six that still allows taxpayers to claim the same itemized deductions on both their state and federal income taxes. By eliminating this redundant tax break, analysts estimate the state would see a $97 million boost in revenue.
Obviously this list is only a start, but it gives an interesting snapshot of some of the options available to begin to dig out of the budget shortfall we’re anticipating. Tapping the Rainy Day Fund and agency revolving funds will most likely be considered as well, as well as issuing new bonds and capping tax credits and deductions.
As always, I welcome your comments and concerns about state government. Please feel free to contact me by writing to Senator Charles Wyrick at the State Capitol, Room 523, Oklahoma City, OK, 73105 or you can call me at (405) 521-5561.
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