One strategic move that would create an economic boom in the metro would be for Oklahoma to phase out the state personal income tax. Can you imagine the boom that would happen throughout the OKC metro area if this happened? Places like the vibrant and growing Paseo Arts District and all of its entrepreneurs would have more customers, as well as increased buying power from current customers. Based on the proven principles of the velocity of a dollar, this economic activity would spark income generation for many, thus generating employment and significantly more sales tax for the city and the metro area.
With Oklahomas status as the state with the lowest cost of living (according to the Missouri Economic Research and Information Center) and one of the states with the lowest housing costs, having no personal income tax would close the deal for many companies and their employees looking for places to start or relocate from states that are increasing taxes. Economic developers will tell you that many times Oklahomas state income tax, compared with another states lack of an income tax, was the major reason for a business to discount Oklahoma. Eliminating the personal income tax would import entirely new populations of employers and employees with both their capital and incomes, adding even more economic activity.
The state could accomplish this first by reforming the personal income tax code which currently unjustly picks winners and losers by removing all deductions and credits. This allows for an immediate revenue-neutral reduction in the top income tax rate from 5.25 percent to 3 percent. As of January 2011, Oklahoma is 23rd when ranked according to personal income tax rates. Removing deductions and credits would immediately improve Oklahomas ranking, bumping it to the position of the state with the lowest personal income tax rate, other than states with no personal income tax. In a recent scientific SoonerPoll, 63.4 percent of Oklahoma likely voters favored using savings from tax-break elimination to reduce the state income tax.
The next step would be for the state to set aside growth revenue over the next couple of years, resulting in a dedicated savings account of $200 million-$600 million, available to start phasing out the personal income tax. The third step would be to partner growth in all other tax sources for Oklahoma, the initial dedicated savings account and restructuring of state government (total spending is currently at record-high levels) so that funds are spent only on core functions. Then the rate can be completely phased out over a 7- to 10-year period.
As we know from the national and global economy, competition is fierce. Those who dont adapt will be left behind. Oklahoma has an opportunity to establish itself as the No. 1 destination for all, through a complete phase-out of the personal income tax. This will create a long-lasting metro area economic boom, benefiting all generations to come.
Small is a CPA and the fiscal policy director for the Oklahoma Council of Public Affairs. He lives in Edmond with his wife and three daughters.