The Eyes of the Beholders: Is Oklahoma a rich state, or a poor state?

Oklahoma has a better economic outlook than most U.S. states because of its dramatically improved economic performance over recent years, according to a national study.

However, analysts working at the Sooner State’s two leading policy think tanks drew substantially different conclusions about the merits of the study in interviews with CapitolBeatOK.

The American Legislative Exchange, or ALEC, in cooperation with economist Arthur Laffer, ranked Oklahoma seventh in economic performance and 14th in economic outlook, with first being the best and 50th being the worst. The rankings are detailed in “Rich States, Poor States: ALEC-Laffer State Economic Competitive Index” released this month. 

“ALEC’s ‘Rich States, Poor States’ study is … the ‘test’ to see whether or not your state is promoting free markets, individual liberty and limited government, thus resulting in economic development,” said Jonathan Small, fiscal policy director of the Oklahoma Council of Public Affairs, or OCPA, a conservative organization that disseminates information on policies consistent with free enterprise, limited government and individual initiative.

Small credited the state’s comparatively strong ranking to its several reforms, including restrictions on revenue raising, such as a voter-approved constitutional amendment requiring legislative super-majorities or popular approval for any tax hikes, as well as a reduction of the income tax rate by 25 percent.

However, David Blatt, director of the liberal Oklahoma Policy Institute, which focuses on information, analysis and commentary on state legislation and policy trends, had a different view.

Blatt described the ALEC study as being “based on the simplistic and wrongheaded idea that low taxes are the be-all and end-all of state economic performance. In reality, years of research have shown that the most effective and efficient fiscal tools at the state level are those that provide quality public services to businesses and citizens alike.”

In releasing the study, an ALEC statement said the report helps states “drive economic growth, create jobs, and improve the standard of living for their citizens” with its guiding factors on economic performance and outlook.

The ALEC study determined the states’ economic performance based on data from 1998 to 2008 on personal income, domestic migration and non-farm payroll employment. In the first category, Oklahoma had 63.2 percent growth, ranking third best in the nation. For domestic migration, the state ranked 22nd; for non-farm employment growth, the state’s ranking was 18th. 

The economic outlook ranking was based on 15 variables, including personal and corporate income tax rates, property and sales tax burdens, estate or inheritance tax, tax policy changes, number of public employees, state minimum wage, workers’ compensation costs, and right-to-work state.

Oklahoma ranked among the best states in property tax burden, lack of an estate tax and its right-to-work status. At the other end of the scale, the state was 41st in workers’ compensation costs per $100 of payroll and 36th in the number of public employees per 10,000 in population.

Laffer said the current unsustainable state budgets can not be blamed on insufficient tax revenue. Instead, he made the case for supply-side economics: “Increasing taxes on productive activities, such as working, saving or investing, only discourages economic output and diminishes the potential for real economic recovery.”

To propel Oklahoma to the top ranks, Small said the state income tax must be reduced — and eventually eliminated.

“Oklahoma’s sales tax growth rate more than doubled after lowering the state income tax, and from 2005 to 2010, the state gross domestic product increased from $120.7 billion to $147.5 billion,” Small said.

He also said the governor should appoint all boards and directors of appropriated agencies, with the advice and consent of the state Senate for more important appointments, to control spending.

“This will stop the rogue actions of boards and directors such as the former state board of education and (its) diversion of funds required to be contributed to the teacher’s retirement system and health benefit costs,” said Small. “This reform will also stop boards from granting unnecessary tuition increases (and) unwarranted director salary increases/bonuses.”

Small said he wants to see major spending reforms in higher education, Medicaid and health care, because they “are experiencing unsustainable levels of growth in spending and must be controlled.”
 
Blatt blasted the assumptions of the report’s authors that businesses choose where to locate and invest because of low taxes.

“The key factors … are quality public institutions and services, access to markets through a good transportation system, access to quality health care, and an ample, skilled labor force,” said Blatt.

He took issue with the report’s factors that emphasize reducing or eliminating taxes and developing a market that does not protect workers and consumers. 

“Under their methodology, a state that had no income, property or sales tax would top the ALEC rankings — but it wouldn't be a place anyone wanted to live, and it certainly wouldn't be prosperous,” Blatt said.

Small said he was optimistic about political developments in the coming year for Oklahoma and the evidence of progress in the ALEC report.

“Overall, the budget was a significant improvement over prior years, with less gimmicks and more cuts. Unfortunately, this session did not see a comprehensive and robust evaluation of all the various government programs, and the establishment by lawmakers of the core functions of government,” said Small.

“Next year, this should be a top priority, so citizens can see core functions funded realistically. This will allow for the elimination of extras such as state subsidized television, arts, local projects, some welfare spending and other wasteful spending.”

Blatt’s view was more pessimistic.

“Far more threatening to Oklahoma's prosperity than the specter of high taxes is the impact of successive rounds of ever-deeper state budget cuts, which are corroding the core public services that our businesses, as well as families and communities, depend on,” said Blatt.

“As the economy recovers, it is vital that we not dig ourselves into a deeper fiscal hole by rushing towards another round of tax giveaways. Instead, we need to seriously consider how to reconstruct a tax system that is capable of meeting our long-term budget challenges, while prioritizing investments that will promote our long-term prosperity, security and health.”

ALEC is “the nation’s largest nonpartisan individual membership association of state legislators, with nearly 2,000 state legislators across the nation and more than 100 alumni members in Congress. ALEC’s mission is to promote free markets, individual liberty, and federalism through its model legislation in the states,” according to the group’s June 22 press release. The release accompanied Laffer’s overview.

Stephen Moore, senior economics writer at the Wall Street Journal, and Jonathan Williams, director of ALEC’s Tax and Fiscal Policy Task Force, are co-authors of the ALEC-Laffer study.