Oklahoma cuts taxes while other states fund its social programs
Conservatives are working in legislatures across the country to eliminate or reduce state and local tax rates with the stated purpose of promoting job creation. These legislative efforts have received support from the American Legislative Exchange Council (ALEC), an ultra-conservative lobbying group. Oklahoma Governor Mary Fallin is the latest beau ideal for ALEC’s fiscal austerity drive as she leads the charge to eliminate her state’s income tax. She writes in the introduction to ALEC’s latest edition of “Rich States, Poor States”:
I have been committed to these fundamental principles for years, and we are seeing incredible results because our legislators have had the courage to stand with me in support of conservative governance. Oklahoma’s economy is outperforming the national economy, and our success stands in stark contrast to the record of dysfunction, failed policies, and outrageous spending that occurs in Washington, D.C. Oklahoma could teach Washington a lesson or two about fiscal policy and the proper size and role of government – and so could the tax and fiscal policy reforms espoused by ALEC.
I’m all for state and local governments shrinking their workforces and learning more efficient ways to deliver government services. There is nothing sacred about the current level of the government’s labor force, especially at a time when the non-public sectors of the society are continuously seeking to deliver goods and services with fewer economic inputs. It is only fair that we ask similar efforts of the public sector.
But as Governor Fallin excoriates the federal government for “outrageous spending,” I think she needs to be made aware that a large portion of federal spending is flowing to social entitlement programs that support enormous parts of her state’s economy.
As seen in the chart above, each Okie paid an average of $4,685 to the federal government and received $6,934 on average in federal spending in return. Oklahoma received $7.9 billion more in federal funds than it paid to the federal government, and a large portion of those funds came from wealthier, more liberal states like California, New York and New Jersey. The excess transfer from the federal government was larger than the $6.4 billion in state taxes that Oklahoma collected in 2004.
Using the 2004 Census and Tax Foundation data, we can see that Oklahoma received $24.4 billion in federal entitlement payments in 2004. In the same year, Oklahoma’s GDP was $107 billion. Although it’s not counted in the state’s economic data, social entitlement transfers from the federal government support a big part of the Oklahoma economy.
ALEC and other conservative organizations are pushing for a balanced-budget amendment to the U.S. Constitution. Although I agree that there is a lot of scope in the federal budget for savings, especially in the defense budget and in entitlement programs, balancing federal spending and taxes needs to happen over a number of years. Governor Fallin is proposing to kill her state’s golden goose. She had better hope that cutting state taxes ramps up revenues enough to compensate for lost federal dollars.
New York Times: How Richer States Finance Poorer Ones
New York Times: The Geography of Government Benefits
Tax Foundation: Why Do Some States Feast on Federal Spending, Not Others?