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BHI finds a workers compensation tax cut would be OK for Oklahoma

By reducing workers compensation premiums by 10 percent, the state of Oklahoma could increase per–capita personal income and create thousands of new jobs. This is the finding of the Beacon Hill Institute at Suffolk University in Boston.

In a study for the Oklahoma Office of State Finance, the Beacon Hill Institute applied its state econometric model to the Oklahoma economy. The study, titled An Application of the BHl State Tax Analysis Modeling Program to the State of Oklahoma, provides a method of showing how state economic indicators respond to changes in state tax law.

According to a recent national study of 1996 workers compensation costs for manufacturers, Oklahoma had the fifth highest workers compensation comparative costs in the country, up from seventh highest the previous year. The same study found that Oklahoma had the thirteenth lowest average statutory benefit provisions for its workers.

Numerous Oklahoma businesses have complained that the high costs of workers compensation premiums in the state are hurting their companies and the state's economy.

Governor Frank Keating has made workers compensation reform one of his top priorities for the upcoming legislative session, which gets under way February 3rd, 1997. He has announced his intent to support a number of recommendations to improve the system which have been proposed by a statewide bipartisan task force chaired by Lieutenant Governor Mary Fallin. The Fallin Commission on Workers Compensation Reform is made up of hundreds of Oklahoma businesses and representatives of the medical, insurance, and legal communities, and includes both employers and employees.

A number of Republican and Democratic state legislators have also called for reduction in workers comp rates in recent weeks, and legislation to implement the Fallin Commission recommendations is expected to be co–authored by members from both parties.

Modeling a Workers' Comp Tax Cut in Oklahoma

The Beacon Hill Institute for Public Policy Research (BHI) at Suffolk University in Boston, Massachusetts, examined the economic impact of a hypothetical 10% reduction in Oklahoma's workers' compensation premiums, and found that it would lead to an increase in the state's per capita income of $63 and an increase of 8,492 jobs, which in turn will lead to an increase in state income tax revenues of $8.6 million. These effects would take place in the first full year after implementation of the tax cut. The gains in per–capita income and in employment would be greater in future years, as the economy expanded.

The purpose of the State Tax Analysis Modeling Program (STAMP) is to determine how a state economy would respond if various taxes were raised or lowered in that state. State Finance Director Tom Daxon, whose agency purchased the STAMP model from BHI for application to Oklahoma, explained that "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.

"Workers Comp Insurance is a tax on businesses which raises the costs of everything produced in our state," Daxon continued. "This research clearly shows that by cutting that tax and reducing our state's workers comp costs, which are among the highest in the nation, we can both strengthen our economy and improve our state's competitiveness, " Daxon said.

"Cutting premiums would go a long way in improving our troubled workers comp system, but it's not the total answer," Daxon said. "True reform in the system, as studied by the Fallin Commission, is the real answer to controlling the high costs."

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Last update: 2/24/97

Revised for formatting on 7/2/03 15:01 02-Jul-2003 3:01 PM

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