What Kansas and Maryland Could Teach Oklahoma About Taxes and Services
States are finally starting to rise from the economic downturn, and lawmakers are taking a long, hard look at themselves.
They’re faced with a difficult question, writes the New York Times‘ Michael Cooper: “Should they restore some of the services and jobs they were forced to cut after the recession — or cut taxes in the hopes of bolstering their local economies?”
Lawmakers in Oklahoma are dueling over those same questions, and the political and policy philosophies that underlie each position.
No two states have settled the debate more differently than Kansas and Maryland, Cooper writes. They’re polar opposites, and they could serve as real-life post-recession policy test cases.
Maryland is controlled by Democrats, has a “pristine” credit rating, and raised income taxes on its biggest earners this year in a bid to preserve services and spending, Cooper reports. Business groups there warned that income tax hikes would hurt the state’s competitiveness.
Kansas is completely different, Cooper writes. It’s controlled by Republicans who decided an income tax cut was the best way to spur its economy and business competition. Moody’s warned that Kansas’ income tax cuts would mean big revenue losses and deficits that could necessitate more spending cuts down the road.
The income tax cut in Kansas played a prominent role in Oklahoma’s own argument over the tax — the state’s single largest source of funding for state agencies and services.
Republicans argued that if Oklahoma didn’t lower its rate, it could be sandwiched between no-income tax Texas and lower-income tax Kansas. Gov. Mary Fallin wanted to reduce Oklahoma’s top rate to 3.5 percent from 5.25 percent, which would keep it below Kansas’ recently reduced 4.9 percent top rate.
Oklahoma lawmakers didn’t pass an income tax cut this year, a failure that was blamed on intense special interest lobbying and efforts to preserve tax credits. Eliminating or reducing tax credits was a key part of proposals to cut Oklahoma’s income tax.
State budgets throughout the country were wrecked by the recession, Cooper writes. Tax collections dropped, and states cut hundreds of billions in spending. And many raised taxes temporarily.
Now, though, revenue has been steadily climbing back for nine straight quarters and a division between Republican-controlled and Democratic-controlled states is coming into sharp focus over whether to restore the lost services and jobs or to lower taxes, which in some states could effectively lock-in some of the budget cuts made during the downturn.
We might have to wait years for the results, but Cooper says those two states are worth watching:
The choices made by Kansas and Maryland could provide something of a real-time test of the prevailing political theories of taxing and spending …