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Tax cuts: OK for Oklahoma |
from NewsLink, Vol. 1, No. 2, Winter 1997
The state of Oklahoma could create 8,500 new jobs by cutting workers compensation premiums by 10%. It could increase per-capita personal income by $319 per year and create 43,435 new jobs if it cut the top personal income tax rate by three percentage points. An equivalent cut in the state sales tax would increase per-capita personal income by $467, lead to the creation of $15,630 million in new capital and raise the average annual wage of Oklahoma workers by $1,096.
These are major findings of a BHI study conducted for the Oklahoma Office of State Finance and released in January 1997. BHI applied its State Tax Analysis Modeling Program (STAMP) to Oklahoma in order to determine the effects of several proposed tax-law changes on the state's economy.
Why use a model developed for application to the Massachusetts economy? Because STAMP is one of the best of only a handful of computer-based models in the country designed specifically to determine the economic effects of state tax-law changes. It can determine how a state economy will respond if taxes are raised or if they are lowered. And with enhancements, STAMP can be applied to any state and can measure any tax-law change.
BHI developed STAMP in 1994; the impetus was the graduated income tax debate in Massachusetts. Before STAMP, there was no statistical framework for measuring the effects of a graduated income tax on the state economy, particularly as it would affect jobs and wages. STAMP changed that and became an important factor in the debate. It allowed voters to see how a major tax-law change such as the grad tax would affect job creation in Massachusetts. Since that time, STAMP has been used to estimate the effects of various proposals to change the corporate tax rate, to reduce the personal income tax, and to reduce the unemployment insurance rate in Massachusetts.
STAMP determines how a proposed tax-law change affects the average marginal tax rate paid by state taxpayers and shows how a change in this tax rate affects employment, the capital stock, the average wage rate and government tax revenue. It determines how changes in state personal, payroll or corporate income tax law affect state employment, wage rates, investment, production and tax revenues.
In Oklahoma, the BHI study was particularly useful in demonstrating how a high workers compensation insurance rate has become a drag on the state economy. Said State Finance Director Tom Daxon, "Because taxes penalize work, saving and capital formation, lower taxes expand economic activity, while higher taxes have the opposite effect. The question, then, is by how much a given tax cut would expand economic activity and in what fashion. The BHI STAMP application to Oklahoma represents a first step in the direction of attempting to better understand the answer to this important question."
NewsLink is the quarterly newsletter of the Beacon Hill Institute for Public Policy Research at Suffolk University. © 1996-2002. All rights reserved.
Revised on 9/9/02 4:03 PM