Tuesday, January 24, 2012

Cockroft Column: Income Tax Elimination Does Not Mean Property Tax Hikes

By now, some of you have probably heard about the recently released plan from the Oklahoma Council of Public Affairs and former Reagan economic adviser Arthur Laffer to eliminate the State income tax in Oklahoma. This issue has been under discussion for some time now, and I’m extremely pleased that it is now gaining traction. There will be much attention drawn to this issue during this legislative session. The plan shows the positive economic impact that Oklahoma would experience if the state’s progressive income tax were to be phased out in the next 10 years.

The plan claims that by phasing out the income tax in steps the state could incorporate the benefits of the resulting positive economic impact into the state budget, therefore not have to resort to tax increases of any kind 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 have especially disliked the property tax because it threatens to force them out of the home they have worked all their lives to pay off.

One common argument is that these fears can 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 almost always followed by someone else describing how Texas has an unfriendly property tax policy.

However, I strongly believe that a huge 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. Property taxes are collected from each county where it is mostly distributed to local schools and CareerTech, as well as a small percentage 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 you’re probably asking, “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 of increased economic activity. This activity would increase the income of Oklahomans by nearly $50 billion. When this money is spent, sales tax collections would increase local government revenue by $3.5 billion. 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 would be possible for policymakers 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.
In addition, State law requires that in order for there to be an increase in taxation at the State or local level, it must be brought before a vote of the people. With our economy in the shape it’s in, no reasonable community would wish a property tax hike upon themselves. 

When the government has the courage to use tax reform to allow its residents 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. It’s a win-win situation: Our economy is given a boost, and State government continues to provide responsible decisions. 

Eliminating the income tax should be viewed as an important step in the effort to reduce property tax rates.
If you have questions or need help, contact my office at josh.cockroft@okhouse.gov or (405)557-7349. You can find me on Facebook and @votecockroft27 on Twitter.

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