Tuesday, February 7, 2012
Gov. Mary Fallin goes large with this year's State of the State speech
SMALL things dominated Barack Obama's State of the Union speech. In her 2012 State of the State speech, Gov. Mary Fallin went large.
Eliminating the personal income tax is as large as a governor can get, yet that's what Fallin focused on Monday. She said Obama's oversized government could learn some things from her smaller government:
“In Oklahoma, we could teach Washington a lesson or two about fiscal policy, the role of government and the proper size of government.”
Now Fallin must teach us how to pay for services if we don't tax incomes. Her plan cuts the seven tax brackets to just three and exempts most lower-income taxpayers entirely. This neuters the argument that tax cutting does nothing for the poor.
Tax cuts, and reform of the tax code, are expected to dominate the 2012 legislative session. Last year, the governor and fellow Republicans accomplished many things, large and small, so they can now focus on the giant issue of tax policy.
Clearly, Fallin won't lead from behind in this discussion. She's out front with a proposal not only to eventually eliminate the personal income tax but to help pay for that drain by ending “loopholes” and waste, and by “capitalizing” on economic growth from her pro-business policies.
Politicians often promise savings from attacking waste; those savings generally don't match the claims. Pro-growth policies may or may not result in additional revenues; the national economy will play a large role in that. Thus, the real cost of cutting taxes must come from tax code restructuring.
That's where things will get interesting. Proposals are on the table to eliminate specific tax exemptions and incentive programs, as well as one to eliminate virutally all of them. Fallin wants to cut the top income tax rate to 3.5 percent immediately and make additional cuts when triggered by growth.
The governor's plan in is sharp contrast to the president's. Her path forward is to cut the income tax for everyone and then get rid of the tax altogether. Obama's vision is to raise income taxes for the wealthy, but his definition of “wealthy” is fungible.
Tax policy isn't the only area where the visions differ. Washington, she said, “is leading this country off a fiscal cliff.” Can she lead Oklahoma out of the ranks of states that tax personal income? The larger question isn't whether she can but how it would be done.
Any plan to eliminate all current sales tax exemptions could be seen as a matter of fairness or as the largest tax increase in state history. The latter is how Fallin's critics will see it and that's how they will spin it.
Republican House Speaker Kris Steele said the Fallin plan “appears bold, strategic and responsible all at once.” That's a tall order. Many Oklahomans would welcome a tax cut, large or small. But another minimal cut is neither bold nor strategic.
As for the “responsible” part, that's where the policy meets the polity. We must all help Fallin and lawmakers determine the proper size of state government and how to pay for it.