Did the drop in the state income tax cause the budget shortfall?
The answer is no. Dropping the income tax from 5.25 percent to 5 percent will cost the state about $130 million a year out of a budget of more than $7 billion.
The projected shortfall for the current fiscal year was about $600 million – before the tax took effect – and the projected shortfall for the fiscal year beginning this summer is more than $1 billion.
The tax cut is a drop in the bucket.
The problem is lost revenue from falling oil and natural gas prices. Less than two years ago, oil was around $108 a barrel. In January, it has dropped to $30 a barrel – and it is predicted to go lower.
That is causing less oil and gas to be produced in Oklahoma and the resulting slowdown is adding to unemployment statewide. And those energy jobs are good-paying positions.
The bright spot in this bleak picture is the price of gasoline for the consumer. That should spur tourism this summer. And since diesel has dropped in price, the cost of transporting goods should be a help to consumers, too.
Oklahoma needs to diversify its economy. Everybody knows that. But it is hard to attract businesses from outside the state when Texas and Kansas (plus Wyoming and Florida) have no state income tax and ours is at 5 percent.
It’s true that Texas has high property taxes, but the perception is that Oklahoma has high income taxes and that deters some businesses.
Oil is a boom or bust industry. Oklahoma has dealt with this problem before and survived. We will again.
Just don’t blame the shortfall on a miniscule tax cut.