Despite rising income inequality in the U.S. — a growing gap spotlighted by last year’s presidential campaign and the Occupy Wall Street movement — some Oklahoma leaders have wanted to make the state’s already-regressive tax code even more so.
Although the top 5 percent of the state’s earners paid 5 percent of their income in taxes compared to the bottom fifth’s 10 percent, three prominent plans for tax reform taken up by state legislators in 2012 proposed reducing the top tax rate and axing credits for working families.
Haves and have-nots
None passed, and most of the credits appear to be safe this legislative session, despite a Senate proposal to limit eligibility for the Child Tax Credit and Child Care Tax Credit.
“Compared to where we were a year ago, there seems to have been a recognition of the importance of these broad-based credits that benefit low- and moderate-income families,” said David Blatt, director of the Oklahoma Policy Institute, a left-leaning think tank aimed at informing better policy by providing better data. “There has been a real effort among leadership to keep those off the table.”
But other formidable challenges remain. According to a 2012 report by the Center on Budget and Policy Priorities, the Sooner State accounts for some of the last decade’s greatest chasms between the upper and the middle classes.
Since the 1970s, the wealthiest fifth of Oklahoma’s households saw their incomes rise nearly 64 percent, whereas the middle fifth rose only 16 percent and the poorest fifth gained 5.3 percent.
In more recent years, lower incomes have actually fallen. Between 1998 and 2007, the top fifth gained a more modest 7.7 percent, but the middle fifth stagnated and the bottom fifth lost 7.5 percent of their income.
The state’s pie has continued to grow, but one slice accounts for the lion’s share.
Tax credits are one key to reducing the burden on low-income families. In its 2013 Assets & Opportunity Scorecard, a state-by-state index of Americans’ financial security, the nonprofit Corporation for Enterprise and Development recommended that Oklahoma actually expand the Earned Income Tax Credit to help struggling residents maximize their incomes and build assets.
Some conservative voices have argued that the income gap isn’t necessarily a problem. Last December, the State Chamber of Oklahoma hosted a guest from the Heritage Foundation whose keynote speech was titled “Defending the Dream: Why Income Inequality Doesn’t Threaten Opportunity.”
Likewise, an editorial in The Oklahoman last November posited that “perhaps the gap is widening because some people are working harder and succeeding out of proportion to other people.”
Blatt agrees that income inequality isn’t a problem — at least not for everyone. “It’s not a problem for those in the upper income brackets,” he said. “It’s more for those who are seeing their share diminish.”
However, he points out that as the number rises of those struggling to get by, so does pressure on public and private safety nets. Other strains associated with pronounced income inequality — such as higher rates of crime, incarceration, teen childbirth and even stymied economic growth — indicate that broad-based prosperity is a boon to society as a whole.
“We and others in the faith community and food-security advocates are engaged in an ongoing and likely permanent campaign to educate policymakers on the circumstances of lower-income families,” said Blatt.And tax credits remain vulnerable.
State Rep. Earl Sears, R-Bartlesville, is a co-sponsor of Senate Bill 323, which seeks to reduce or eliminate 33 tax credits ranging from the arts to hepatitis vaccinations.
One of them, the Sales Tax Relief Credit, provides low-income residents a $40 rebate to offset the tax paid on groceries.
“The purpose of tax credits is to incentivize economic development,” Sears said. “It is time for a thorough review of all of them to make sure we’re still getting our bang for our buck.”
But Blatt sees signs for optimism.
He said several measures this session that threatened the safety net either have stalled or were heavily amended. Only a few bills are still alive that his group identified as being unfair to poor citizens.
Among them is legislation championed by House Speaker T.W. Shannon, R-Lawton, which creates a public service announcement campaign promoting marriage. House Bill 1908 would be funded by dollars from Temporary Assistance for Needy Families.
“There’s no research that shows running PSAs that promote marriage can have any effect on anybody,”Blatt said. “However, if the bill passes, will anybody get hurt? Chances are no, but there’s money that could be spent more productively.”
No Medicaid Expansion
Last year, Gov. Mary Fallin rejected federal aid totaling $3.6 billion over seven years to extend Medicaid under the Affordable Care Act to some 693,000 qualifying Oklahomans.
Mickey Hepner, dean of the University of Central Oklahoma’s College of Business, calls that move “an incredible mistake” from both an anti-poverty and economic development perspective.
“This expansion would have helped provide greater access to quality health care for Oklahoma’s working poor ... the group most likely to be unable to pay when they get sick. These uncompensated costs are passed on to taxpayers,” he said. “We will pay in other ways.”