Nobody likes to pay taxes – especially behemoth, profitable corporations that can well afford them. But still, taxes are a necessary evil, if citizens are to have well-maintained streets and highways, good schools for their children, veteran and elderly care, and other things the private sector doesn’t typically provide.
A discussion of what’s “fair” in a tax code will produce answers as varied as which cut of steak is the best, and the ideal way to cook it. But there seems little doubt that giving a state’s major industry a permanent pass on taxes will force a shortfall that can’t be recouped without decimating other parts of the budget.
Recently, media reports from Tulsa sources revealed that tax breaks for Oklahoma’s energy production sector will cost the state $307 million in 2014, with another $304 million hit set for 2015. The anticipated budget shortfall is around half of the sum Oklahoma parcels out in tax breaks for oil and gas companies.
State officials across the country commonly use tax breaks as a ploy to encourage businesses to locate and expand within their borders. Not only are these companies expected to contribute to the economy in other ways, they provide jobs for the population. But at some point, the gravy train slows down, and the companies begin to pick up a bigger share of the tab, whether that be at the state or local level. It might be said that their rising tides are expected to lift other boats in the harbor.
There are two types of companies: Those that stick around and become an integral part of a state or community, and those that jump ship and look for another tax break elsewhere. In almost all the latter cases, those at the top of the corporate ladder become richer and richer, while their employees and the states and communities they serve are worse for the wear.
Sometimes, businesses hold the state or city hostage, with leaders fearing that asking them to contribute more could cause them to flee to cheaper pastures. That may have been the impetus behind a proposal in the Oklahoma House to keep taxes for the energy industry at 1 percent – permanently. But that’s not practical. Since no one can know what will happen a few years or decades down the road, such a rash promise is almost certain to evolve into an embarrassing lie – as anyone who recalls former President George H.W. Bush’s “read my lips” pledge will attest.
The energy industry won’t abandon Oklahoma any more than it has abandoned Texas. That state taxes such corporations at about 7 percent, and there’s no end in sight to the drilling there. And horizontal and deep-well drilling has escalated in Oklahoma to the point that some experts say it could propel the state to the top of the economic heap in a few years. This type of extraction no longer qualifies as an “experimental” concept, and has proved wildly successful. So if tax breaks are doled out on the theory that a struggling enterprise needs help getting on its feet, that reasoning no longer applies.
It’s doubtful that Gov. Mary Fallin would sign a bill making the lavish tax breaks “permanent,” but it would be better if she would push for a time limit on some of these benefits. It might solve the riddle of where the money for these other individual tax cuts she proposes will come from, and the extra influx of cash could be used to shore up our schools and crumbling infrastructure.
Tax incentives are an essential part of doing business in today’s competitive global marketplace, but a state shouldn’t go overboard unless it can show a clear benefit for everyone, not just a select few. And it certainly shouldn’t do so if that action is going to create a budget deficit.
Besides, if we really want to level the playing field, let’s talk about incentives for those small mom-and-pop businesses that are always the core of every community. Those are the ones who need and deserve our help.