Government Spending Gone Amok

This year, the Oklahoma legislature will enact significant spending cuts in all areas of government, including public safety, transportation, education and healthcare.

Doctors taking care of low-income Oklahomans will be paid less, and some might discontinue providing care, leaving many patients without access to care. Teachers will be laid off, and classroom sizes increased. Oklahoma has stopped providing food to thousands of elderly Oklahomans through the senior nutrition program. We have reduced in-patient treatment for the mentally ill. College-bound students face escalating tuition and fee will increase.

The budget failure will decrease investment in our roads and bridges and highways. Our district attorneys are finding it more difficult to prosecute criminals, and the Department of Corrections is under enormous fiscal strain. House Republicans are polling their constituents this session about early release for non-violent offenders.

The Oklahoma Legislature is enacting these draconian cuts, with much overt hand wringing and despondency, in the worst budget crisis since World War II. The Legislature, however, has not introduced the cleaver to government spending through the tax code, the wealth of exclusions, credits, exemptions and other preferential tax treatments conferred through our state's tax code.

In whatever form, tax code spending diverts tax dollars to favored industries, favored taxpayers, favored behaviors and reduces the amount of revenue the state of Oklahoma would otherwise have available for core services.

Tax expenditures certainly have a role in stimulating economic growth, but they can also be client or donor driven, financial benefits to favored businesses without the transparency of the appropriations process or any cost/benefit review. As many economists have noted, tax expenditures are government distortions that reduce capital investments in other business sectors that might have larger rates of return and in public investments vital to our competiveness for the future.

The state lacks a mechanism for determining the effectiveness of its tax credits. For example, investor and corporate tax expenditures have exploded, from under $50 million in 2006 to more than $210 million in 2008. Yet, unlike the Oklahoma's Quality Jobs Program, we don't have a lot of data about economic impact, job growth, tax revenue generation or any formal process to determine whether overall benefits to Oklahomans justify the costs of the credits.

Oklahoma has also given more than $370 million to oil and gas companies since 2004. To borrow Tulsa oilman George Kaiser's phrase, these credits are "Hoodrobin giveaways," money taken from lower income Oklahomans and given to the rich, many of whom don't even live in the state.

According to Oklahoma City business professor Steve Agee, these oil and gas rebates are not an important factor in promoting drilling activity. When Mr. Kaiser testified before the Oklahoma House Appropriations and Budget Committee, he said he wanted to be a voice for the thousands of struggling Oklahomans "who see their taxes rise because of special interest handouts." His words deserve repeating:

"This oil and gas gross production tax rebate does not stimulate a significant amount of economic activity in the state that would not otherwise occur.

"The rebate is paid by all the taxpayers of Oklahoma and the benefit is received by investors in oil companies, many of who are out-of-state shareholders in large corporations.

"The amount of money saved by eliminating or restricting this tax rebate could better benefit Oklahomans through general tax cuts or could be matched with Federal or private dollars and meet some very pressing needs in this state during the worst depression in even my long lifetime."

I wonder if Arkansas looks our way and sees a giant lollipop. While we send millions of taxpayer dollars to oil and gas companies that are doing so well they can pay their executives millions of dollars, Arkansas negotiated a tax increase from the energy industry in 2008. Arkansas estimates the new tax will raise almost $100 million annually, and they have earmarked the revenue for investment in roads and bridges.

In seasons of adversity, hoping for better, before scarcity gives way to famine, state government is forced to eat its own seed corn, with real and deep impact on the lives of hundreds of thousands of Oklahomans. Let's not give away the stalks themselves. Within those stalks lie seeds to plant instead.

There are those who whine about class warfare when the subject of tax code spending arises. But this is not the case of one person having riches while another lacks a meal; this is the case of those with great advantages extending their privileges at the expense of ordinary Oklahomans who haven't seen such days like these.

There is an explanation for it--given their numbers, small distributional coalitions can organize and siphon away government largesse to the detriment of the general population-- but there really is no excuse for it.