POSTED ON FEBRUARY 17, 2010:
Death and Taxes
With the sales tax share decreasing, we need to analyze other funding sources
Tulsa's continued reliance on the sales tax brings new meaning to Yogi Berra's famous quip that the future ain't what it used to be. I had the same thought when Republicans took over the state senate last year.
As bad as this year has been for Tulsa, next year could be worse. We are losing the sales tax market share to surrounding cities (our market share has declined from 82 percent in 1995 to about 65 percent today), and non-taxable services comprise an increasing percentage of the state's gross product (our revenue base is thinning).
A Jan. 27, 2003 Tulsa Metro Chamber Report from the Economic Development Planning Group forewarned that "the current decline in sales tax revenues" will "wreak havoc with the ability of the city of Tulsa to meet its operating and capital obligations." A warning we failed to heed.
Now that we've been staggered by the loss of more than 100 police officers in the current budget crisis, maybe Tulsans are ready to consider other funding sources to keep our city safe and secure, clean and well-maintained, with the quality of municipal services we expect and deserve.
Two years ago, Mayor Bartlett, as co-chairman of the Streets Task Force, called for honest discussion and political courage about Tulsa's long-term funding challenges.
Among other recommendations (including a permanent ? cent increase in the sales tax and higher property taxes), the task force members proposed the conversion of Tulsa's surrounding highways into toll roads. Their reasoning: First, it's a way to assess a fee for those who live outside the city but work, shop and recreate in Tulsa, and thus contribute to city infrastructure costs; and second, an employment tax to recoup these costs would be "too invasive for local businesses and too heavy-handed to enforce."
The Task Force made no mention that it might also be invasive and heavy-handed to charge a toll fee every day on tens of thousands of Tulsans as they drive about town. It's our city. Maybe we don't want to pay to drive in it. Given a choice between toll roads and a sales tax increase as one alternative or a new employment tax in lieu, I don't think Tulsans would reach the Task Force's same perfunctory conclusion.
Someone other than a fan of Peter Griffin ought to make the comparison, but I couldn't find that someone. Therefore, the table below will have to be our guide.
Effective Avoided City
AGI City Tax Sales Tax Tax Cut
$50,000 $425 $528 $103
$75,000 $638 $625 ($13)
$100,000 $750 $771 $21
$200,000 $1,440 $1,454 $14
$1,000,000 $6,500 $1,454 ($5,046)
At $20 billion for all compensation and wages in Tulsa, the payroll tax would need to be one percent to be revenue neutral. The wage tax is deductible on your federal return, so a taxpayer in a 28 percent tax bracket is effectively paying the city wage tax of .0072.
The effective city tax is reduced by the federal tax rate at each income bracket. The avoided city sales tax (I use 3.5 percent as if the Task Force recommendation to increase city sales tax by one half percent were adopted) is taken from IRS tables.
Would most Tulsans pay more or less taxes in a city with no sales tax and a 1 percent income tax? It's a small tax decrease for city residents making up to $50,000 and of no impact for those making $200,000 and less. Retirees will see a tax cut, approximately $30 a month by my estimate.
City residents fare better with a wage tax because the base is broader. It's not Yogi Berra logic, who asks that his pizza be cut in four slices instead of six when he isn't so hungry.
The pie is actually larger because the levy is assessed upon anyone working within city limits, consistent with the Street Task Force efforts to have all users of municipal service, regardless of their residence, share the cost.
That might be one reason why Denver, Pittsburg, Columbus, Birmingham, St. Louis, Kansas City, Louisville, Portland, San Francisco, Baltimore, Cincinnati, Indianapolis, Grand Rapids, among more than a hundred other cities, levy a wage, income or occupational tax. (Oklahoma law allows cities to tax residents but not non-residents who work within the city but live outside it; I am attempting to amend state law this session).
The wage tax/sales tax trade-out provides Tulsa retailers an edge--a 3 percent price advantage in the form of city duty-free shopping, arbitrage sure to reverse two decades of territorial loss and kindle economic activity for city retailers. More spending, more jobs, more income, more economic activity, more spending, more jobs.
In lieu of the tax, which no doubt will ignite the ire of non-residents, the metropolitan area could enter into closer partnerships to share services, procurement and planning.
As I wrote previously, working together with surrounding cities offers tens of millions of dollars in savings for capital equipment, infrastructure investment, and ongoing maintenance costs, and we will emerge much stronger as a region in the competition for jobs and new business growth.
No one likes to pay taxes, but Tulsa is approaching the brink. We've darkened our expressways, shuttered community centers and fire stations, reduced the police force and eliminated two pothole repair crews just as our impetigoed streets broke out in a contagion. A community can't tax its way to prosperity, but if we don't find our way out of this fiscal mire, the future sure ain't what it used to be.
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