A new economic study predicting a lean future for the state of Oklahoma raises questions about what the essential role of government should be.
And, as a result, some of the Tulsa area's state lawmakers find themselves at opposite ends of an impassioned ideological debate on the issue--a debate taking place amid scaled-down revenue projections for next year by the Oklahoma Tax Commission.
"The state's structural budget is on an unsustainable course," the report reads.
Dr. Kent Olson, author of the report and professor of economics for Oklahoma State University, forecasts more than $20 billion in structural deficits for the state government over the next 30 years.
Olson is a member of "Oklahoma 21st Century," a research affiliate of the State Chamber which commissioned the report called "State Policy and Economic Development in Oklahoma: 2007."
As if to confirm Olson's gift of economic prophecy, just days after the publication of his study the state Tax Commission cautioned lawmakers to lower their expectations of tax revenue by $350 million for fiscal year 2008, which includes $100 million in lowered corporate income tax projections.
"This is exactly why we've emphasized fiscal responsibility this year and why we have already laid the groundwork for cutting and eliminating needless government bureaucracy," said House Speaker Lance Cargill, R-Harrah, in response to the news. "We've seen a wide fluctuation in revenue estimates so far. When the Democrats were in control several years ago and there were shortfalls, their answer was to raise the income tax. That won't happen on our watch."
Senate President Pro Tempore Mike Morgan, D-Norman, echoed Cargill's concerns, but might have different ideas in mind for a solution.
"It is incumbent upon us now to make certain that we can meet the obligations we have created and avoid recklessly rushing to over-extend ourselves in an uncertain future," he said. "No one knows exactly what these new revenue estimates are signaling, but given the cyclic nature of an energy-driven economy, it would be foolish to repeat the mistakes of the past."
Morgan might be technically correct that no one knows for sure what the lowered projections might portend, but if Olson's report is to be believed, the future isn't entirely uncertain.
Cargill and his fellow Republicans lay the blame at the feet of a bloated government, but Olson has other ideas. According to his report, deficits would have come anyway, but tax cuts are chiefly to blame for the immensity of the budget shortfalls he predicts. Specifically, he points to the tax cuts enacted by the state Legislature in 2004 and 2006.
Olson says in the without-tax-cut scenario, there would be a small but declining surplus from 2007 to 2012, followed by increasing budget deficits each year from 2013 to the last year of the projection period, which is 2036.
The tax cuts in question, however, will reduce revenues by a little more than $21 billion from 2007 to 2036, or an average of $700 million a year, he said.
"These cuts both hasten the advent and increase the magnitude of the annual deficits," warned Olson. "In this scenario, budget deficits begin in 2008 and increase steadily each year, reaching nearly $2 billion in 2036."
"Tax cut advocates often argue that they will 'pay for themselves' by producing more rapid economic growth and a larger tax base," he continued.
Tax cuts do, in fact, have a positive effect on the economy and therefore the tax base, Olson acknowledged, but he said that effect will only replace a scant 30 percent of the lost revenues.
He doesn't expect economic growth to correct the problem, either.
"It would be very difficult to grow our way out of this," Olson said.
"At a minimum, that would require a rate of growth nearly 30 percent higher than the estimate by the Congressional Budget Office that serves as the basis for this study's projections of the individual income and general sales taxes."
Olson authored his portion of "State Policy and Economic Development in Oklahoma: 2007" as a member of Oklahoma 21st Century, a research affiliate of the State Chamber. (His is the first of three chapters.) The second two deal with the role of the Oklahoma School of Science and Math in education and economic development and with the state government's science and technology policy.)
At the time of this writing, the Chamber had not yet publicly announced the report's findings nor formally presented it to the state Legislature, but Olson said that it will put a pretty tough set of choices before lawmakers: drastically reverse the tax cuts or dramatically cut services.
"A course correction will require additional revenues or reduced expenditures, and the amounts required are substantial," he wrote. "For example, it will take the equivalent of an immediate and sustained increase of 40.6 percent in individual income tax revenues, or the virtual elimination of Medicaid, or a 50 percent cut in state support for K-12 education."
The choice one favors, he said, depends largely upon one's philosophy of government.
"Such a future is going to force the Oklahoma Legislature to come to grips with the most basic issue regarding government's role in economic development; namely, the appropriate size and structure of state taxes and expenditures," said Olson.
While the State Chamber has yet to formally submit Olson's findings to the Legislature, a handful of lawmakers have read the report and are using it as a basis for dialogue and debate. Tulsa's Democratic Sen. Tom Adelson was one of the first to read it and reckon with its conclusions.
Adelson said he believes the gravity of the situation is such that lawmakers need to act, but he has no policy proposals in the works to that end. First, he said, a dialogue needs to take place within the Legislature.
"The conversation needs to take place for what we're going to do about it," he said. "Our first goal would be to build a consensus that that's just not true" that tax cuts pay for themselves.
With or without that consensus, though, Adelson agreed that the ultimate issue in question is what role the government should take in meeting the needs of citizens, and which particular needs fall under its domain.
"The fundamental policy discussion is 'What do we owe each other as human beings?'" he said.
"I'm not one in favor of putting state money aside for things that should be done by the private sector; I'm more interested in focusing on the basic infrastructure," Adelson continued. "But, nothing is as arbitrary as a kid's birth. Should that determine whether he gets health care? That's something we should definitely invest in as a state."
Adelson said he hopes the study will stimulate dialogue with tax cut advocates and with those who believe the state government to be too big.
"They can't win the debate if they have an honest discussion about tax cuts," he said. "I'd like to have them get up and say they don't believe in providing nursing homes for our elderly or in funding education for our kids. We're not doing that much."
One lawmaker with whom Adelson is sure to find himself at odds in that debate is Owasso's Republican Sen. Randy Brogdon.
Brogdon, who is best known for his efforts to limit government and taxes through, among other proposals, a Colorado-style "Taxpayers' Bill of Rights" (TABOR), said any debate based on the findings of Olson's report would be misguided.
"The entire premise of this report is false, and I'm stunned at some of its statements that tax cuts have a negative impact on the economy," he said. "Some of these things are blatantly false. This violates, not only common sense but, that tax cuts stimulate the economy--that's Economics 101."
That tax cuts stimulate the economy, thereby expanding the tax base is "the most basic truth in economics," Brogdon exclaimed. "That's been proven over and over again in history, all the way back to the Roman Empire and all the up to the '80s."
As a result of the Reagan-era tax cuts, he elaborated, "we had the longest expanding economy in the nation's history, and we're still reaping the benefits."
He said Olson's report is flawed because it "looks at this as if it's a zero-sum game" by projecting economic development on the basis of the current rate of growth and not factoring in the stimulation that will continue to result from tax relief.
Duking It Out
Of course, Brogdon's disagreement with a well-respected economist over "Economics 101" begs the question of why one would accept his appraisal of the situation over that of Olson's.
"I can't argue with his degrees on the wall, but I can argue from history and from 35 years of experience from running my own business," he said.
Brogdon owns an air conditioning wholesale company.
"There are a lot of individuals on that panel whom I respect, so I'm a little shocked that they signed off on this," Brogdon also said, referring to the Oklahoma 21st Century board of directors, which includes University of Oklahoma President David Boren, OSU President (and soon to be University of New Mexico pres) David Schmidly, several economics professors besides Olson, and several members of the State Chamber.
"Educators benefit from increased educational funding, though, and a lot of them have corporate ties and benefit from corporate tax cuts," he added. "A lot of these people have never been in the free market, though."
While the architects of the report can boast impressive credentials, Brogdon said their report is less a product of their expertise than of their views of what the government should be.
"It all boils down to your philosophy of government, and this is geared toward 'let the government do it because it can do it better,' but I can't even put into words how wrong-headed that is," he explained.
"They're wanting to do the same old tired thing we've always done in Oklahoma, which makes this group in the state Capitol the sugar-daddy for everyone who comes to it with their hand out, but the private sector can always do anything better than the government can."
"Bureaucrats and politicians think that, the more money you're spending, the better job you're doing--by directing more money here and there, you're doing a better job," he said.
In response to challenges such as Adelson's (which was not aimed at Brogdon in particular, by the way) to say that the government shouldn't pay for education or nursing homes, Brogdon said he does not favor eliminating entire agencies or scaling back on state services so much as he wants to eliminate administrative waste and cut individual programs within state agencies which no longer serve their purpose nor run as efficiently as they should, but continue to receive funding simply because they've been institutionalized for so long.
A reluctance to trim that fat and the idea that government can provide services better than the private sector has led to the "phenomenal growth in government" that Brogdon has seen during his time in office, he said.
He pointed out that when he began his first term in the Senate in 2002, the state's budget for that year was $5.1 billion. For 2007, though, it's grown to $7.2 billion.
However, Adelson contends that, relative to the overall state economy, the Oklahoma state government has not grown significantly since World War II.
"As a share of the economy, state spending in Oklahoma is at 5.7 percent. Governing Magazine issued a report this year, ranking each state in terms of expenditures, and the analysis simply totaled state and local spending and divided the state population," he explained. "Oklahoma ranked 50th. In the areas most critical to the future of our state--our commitment to and investment in infrastructure... in healthcare, education, roads and bridges and public safety--we're last."
Another Democrat--Sen. Jim Wilson of Tahlequah--agrees with Adelson. While he is among the few legislators who have the report in their possession, Wilson acknowledged that he has not yet read its 72 pages.
But he agrees with its indictment of the notion that tax cuts are good for the state.
"That tax cuts grow the economy is one of the biggest hoaxes perpetrated on the people," he said. "There is no empirical evidence that we can increase the amount of money coming into the treasury by reducing taxes."
Wilson said policy-makers like Brogdon sincerely believe it to be true, but only by "misinterpreting for their own bully pulpit" the ideas of renowned economists John Maynard Keynes and Arthur Laffer.
He also dismisses as "nonsense" that the government is too big.
"We see people migrating to states with higher taxes all the time," said Wilson. "Look at Boeing moving to Chicago; Dallas is doing back flips, saying, 'But we have no income tax!' and Colorado is still dealing with TABOR. Give me a man making $150,000 a year--he hates to pay taxes, but he still wants good roads and bridges and a decent education for his kids."
Wilson says the findings of Olson's report may open some eyes.
"It's a big deal because, as much as I preach about this, no one's going to listen to me--you need someone from outside with some credibility for people in the Legislature to listen," he said.
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