Oklahoma vs. Texas: A Red River Rivalry … of Taxes?

• Joe Wertz
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  Joe Wertz was a reporter and managing editor for StateImpact Oklahoma from 2011-2019. He reported on energy and environment issues for national NPR audiences and other national outlets. He previously worked as a managing editor, assistant editor and staff reporter at several major Oklahoma newspapers and studied journalism at the University of Central Oklahoma.

Ronald Martinez / Getty Images Sport

Oklahoma lawmakers have been chasing Texas' economic policy for more than a decade.

Despite a storied sports rivalry that continues again this weekend, Oklahoma lawmakers have a long history of talking up Texas.

Lonestar State-shaped tax reforms remain in the playbook today, a decade after our state’s Texas envy created a political frenzy.

In the interest of beating Texas in the competition for new industries, then-Gov. Frank Keating proposed eliminating franchise and estate taxes and reducing the state income tax.

In the fall of 1999, a citizen task force proposed a modified flat state income tax, which the Republican governor backed, along with efforts to broaden the tax base by eliminating an assortment of deductions, exemptions and tax credits.

In response, then-State Senate President Pro Tempore Stratton Taylor, a Democrat from Claremore, proposed the “Texas Plan.” The initiative would let voters decide whether Oklahoma should scrap its tax code and replace it with an exact duplicate of Texas’ tax code, which didn’t — and still doesn’t — tax income or grocery purchases.

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We believe that there is a need to reform Oklahoma’s tax system … Failure to do so will make it necessary to repeat the search for new revenue more frequently.

– from the 2001 study on Revenue-neutral Tax Reform for Oklahoma’s “Conclusions and Recommendations”

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But the Texas Plan likely was a “ploy,” said Alexander Holmes, Regents Chair of the Department of Economics at the University of Oklahoma, who likened the effort to “a pissing contest” between Keating and Taylor, who’d tired of discussing Texas’ economic policy.

Gambit or not, Keating either bought in or called Taylor’s bluff and endorsed putting the Texas Plan up to a statewide vote. The governor and then-State House Speaker Larry Adair, D-Stilwell, also joined with Taylor in commissioning a report on revenue-neutral options for tax reform.

The report, issued in June 2001, was researched and written by five economists from Oklahoma State University and OU, including Holmes.

The argument behind the study: Oklahoma’s tax policy discourages economic growth and development.

Lost Tulsa / Flickr

The Frank Phillips Tower Center in Bartlesville, where Phillips Petroleum — now ConocoPhillips —once headquartered.

In November that year, state Sen. Glenn Coffee, R-Oklahoma City, urged legislative leaders to repeal the state income tax to help make sure that Bartlesville would remain the headquarters of Phillips Petroleum Co., which had just announced its plans to merge with Houston-based Conoco Inc.

“I have no doubt that our income tax played a significant role in ensuring that Phillips executives will soon be moving to Texas,” Coffee told The Oklahoman in November 2001.

Officials at Phillips wouldn’t comment then on whether an income tax repeal would change their post-merger relocation plans, and the newly formed ConocoPhillips headquarters was moved to Houston.

The income tax repeal never materialized.

Today, task forces at the state Capitol currently charged with examining tax credits, economic incentives and comprehensive tax reform routinely reference Texas when discussing economic policy.

Current Gov. Mary Fallin, a Republican, supports a tax reform plan similar to that of former Gov. Keating, including eliminating the income tax all together.

State Rep. David Dank, R-Oklahoma City, is chairman of the House appropriations and budget revenue and taxation subcommittee, and he co-chairs the tax credit task force currently examining tax credits and economic incentives deemed “constitutionally infirm.”

“Job one has to be a complete review of our tax system. We are already being left behind in economic and job growth by states like Texas with no income tax,” Dank said in a statement released in early 2011. “If we are going to compete in the crucial next few years, we need to stop talking and start acting to dramatically reform our state tax system.”

Is OK vs. Texas a Fair Comparison?

Comparing Oklahoma and Texas economically isn’t easy. The states are very different, and — when it comes to population, output and size — things are much bigger in Texas.

With so many differences, does it make sense to compare the two states when it comes to economic policy? In a recent editorial, Oklahoma State Treasurer Ken Miller said yes.

Economist Russell Evans agrees.

“Oklahoma and Texas are commodity states. Both have big energy industries; both have pretty sizeable ag[riculture] industries,” Evans said. “As a share of its overall production, Oklahoma has a sizeable manufacturing industry that relies heavily on commodities.”

Evans, an assistant professor of economics and the executive director of the Economic Research & Policy Institute at Oklahoma City University’s Meinders School of Business, said it makes sense for the state’s policymakers to use some of Texas’ successes as a benchmark by which to judge economic policy here in Oklahoma.

The similarities go beyond key industries, Evans said.

“There’s a common ideology there that drives both capitols: trying to be pro-business, trying to be low-tax in their own way,” he said.

But the Texas tax formula — ballyhooed in 2001 and 2011 — isn’t a one-size-fits-all solution to economic growth, Evans cautioned.

NPR StateImpact / U.S. Census Bureau

A snapshot of the state tax mix of Oklahoma and Texas, which uses a sales tax to help replace revenue lost from its lack of an income tax.

“The idea that because Texas has no state income tax that necessarily Oklahoma would benefit from adopting a similar tax mix is flawed logic,” he said.

Texas is growing, and envious politicians and business leaders across the country and here in Oklahoma are looking for policies to imitate.

At a tax credit task force meeting in September, state Rep. Earl Sears, R-Bartlesville, asked a representative of the Greater Oklahoma City Chamber if he had data on companies that chose to locate in Texas after first considering Oklahoma. The representative said he had data about which companies chose other states, but didn’t have information on the reasons why they went elsewhere.

A lot of national Texas envy stems from tax revenues related to oil and natural gas — an advantage Oklahoma shares with its southern neighbor, said Dick Lavine, a senior fiscal analyst for the Center for Public Policy Priorities, an Austin-based nonpartisan, nonprofit policy institute that focuses on improving the economic and social conditions of low- and moderate-income Texans.

Compared to Oklahoma, Texas has a much more diversified economy, including a large high-tech center in and around Austin, Lavine said. Dell Computers’ headquarters is there, as is electronics outfit Samsung, which has a semiconductor manufacturing plant that recently started a $3.6 billion expansion.

And, according to Lavine, Texas’ population growth might not be an accurate metric of an expanding economy.

“It’s not so much that people are moving here for jobs, it’s that people are born here,” Lavine said. “We have an unusually young population.”

Lavine said about half of the recent population growth in Texas is “natural growth” — a bigger ratio of births minus deaths. The other half of the population growth is split between people relocating from other states, and from other countries, he said.

“There are lots of reasons for population growth and, therefore, job growth that really has nothing to do with who’s governor or tax incentives or regulation,” Lavine said, noting that many new jobs created in Texas have low pay and little or no benefits.

Texas is tied with Mississippi in having the highest proportion of hourly paid workers who make the minimum wage or less, according to 2010 numbers from the Bureau of Labor Statistics.

The recent recession makes it easier to envy Texas, which fared better than most other states. But despite Texas’ pro-business, low-tax mantra, Lavine said the state should thank regulation for much of that recession resilience.

The Texas Constitution forbade home equity loans until an amendment took effect in 1997. Today, homeowners in Texas can only use 80 percent of their home value as collateral for such lines of credit, which Lavine said has shielded the state from both a slowing U.S. economy and from over-extensions in credit that have proved rampant in recent years.

“That’s what makes Texas look so much better than the rest of the nation,” Lavine said. “We didn’t have a housing bubble, therefore we didn’t have a housing burst.”