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George Kaiser: Myth Buster

An oilman, a philanthropist, a citizen. George Kaiser is well respected in non-profit circles because of his dedication to good causes through the George Kaiser Family Foundation. When I came across this editorial in the Tulsa World, and given my intense desire to see an improvement in the funding for public education in our state, I wanted to share it. Mr. Kaiser may not have all the answers, but I appreciated his courage in saying what needs to be said so our state won’t continue mortgaging our children’s futures. Below is the text of his editorial in full. 

Like many Oklahomans, I am deeply disturbed about the deterioration of our state over the past five years, while our leaders looked away. I have lived here for more than two-thirds of the life of the state, and I have never seen the situation so desperate or the governmental response to the plight of our people so dismissive.

In terms of quality of life and core government services, we are truly in a race to the bottom. As an oilman and banker, I know that we cannot attract talent nor retain our bright high school and college graduates nor generate any true economic development with poor schools, health care, public safety and infrastructure. We are seeing an evacuation of our best and brightest, and not just teachers. Our greatest job growth is in low wage call/fulfillment centers. This is a self-inflicted wound — the direct result of an extreme application of the discredited economic theory that tax reductions stimulate economic activity, the so-called Laffer (should be Laugher) Curve.

Most of us will acknowledge that the state is in a fiscal meltdown. We have long ago cast off the frills and fat and are now deep into the muscle. How did we get to this point and how can we turn the vicious cycle into a virtuous one? It starts by understanding and rejecting the eight myths upon which the prevailing policies are based:

• Myth No. 1: Oklahoma is a high tax state.

We are in the middle among states in income and yet 48th — probably 50th now — in state and local revenues. Not surprisingly, we are also near the bottom with respect to most measures of quality of life and core government services.

• Myth No. 2: Low taxes generate economic development and prosperity.

In fact, the lowest tax states, relative to income, are the poorest and have the weakest economic growth while the highest tax states have the strongest economic growth rates, though one could debate cause and effect.

• Myth No. 3: Our budget can be balanced by eliminating waste.

We should always seek efficiencies and root out corruption, but we are now well below a spending level that any other state has found can support basic services.

• Myth No. 4: Our budget collapse resulted from the decline in energy prices.

The cumulative decline in inflation-adjusted expenditures exceeds $2 billion per year; energy pricing accounts for about $300 million or 15 percent, tax cuts granted to the oil industry account for well over $500 million or 25 percent and income tax cuts about $1 billion per year or 50 percent.

• Myth No. 5: If we restore energy taxes to historic levels, companies will move their drilling to lower tax states.

There are virtually no lower tax states! All of the other major oil-producing states charge 6 percent to 13 percent. Restoring the new well gross production tax from 2 percent to Oklahoma’s previous level of 7 percent would reduce a well’s revenue by only about 2 percent to 3 percent, not enough to affect any drilling decision, since pre-drilling estimates of reserves, costs and prices can each vary by more than 50 percent. We drill where God put the hydrocarbons, not where the tax rate is lowest.

• Myth No. 6: The energy industry already pays more than its fair share of taxes.

Active Oklahoma drillers pay virtually no income tax and about a 3 percent gross production tax, less than 4 percent of the state’s budget. The higher industry-quoted number includes employee income and sales taxes and even state royalties.

Myth No. 7: The low gross production tax rate benefits Oklahoma royalty owners and producers.

More than 70 percent of the benefit goes to out-of-state shareholders of publicly held companies at the expense of Oklahoma taxpayers.

• Myth No. 8: The Legislature is united in support of the low tax ideology.

The general public knows that we need to save our schools, hospitals and roads, stem the outmigration of our kids and attract businesses looking for a place that is safe and invests in education and infrastructure. Freshman and female legislators and a majority of the rank and file understand that. Our legislative leadership should listen to the wisdom of the people of Oklahoma.

We have drained our fiscal lifeblood, and the ideologues are prescribing more leeches. It’s long past time to stop the bleeding and start the transfusions. It doesn’t require smarts, just statesmanship. We must acknowledge our recent fiscal folly and restore some of the revenues we cut … from where we cut them. We need a sustainable plan that brings teacher salaries and educational funding up to competitive levels and begins to restore our roads, police and safety net.

We should balance the budget without gimmicks and gradually restore the drastic cuts we have made. We should continue to seek efficiencies and hope to benefit from an energy recovery. But the starting point is to undo some of the $2 billion of tax cuts and subsidies that we doled out. Since $1 billion of that came from income tax cuts, which are a (misplaced) article of faith in the Legislature, we will have to look instead at the subsidies we handed out to select industries and bring our excise tax rates closer to other states. And, we should require internet sellers to remit the same taxes that our local shopkeepers collect, to eliminate their current 8 percent to 10 percent disadvantage.

Everyone has to accept his share of the burden. If we restore the gross production tax to the rate set in 1971, remove exemptions that wind energy no longer needs, raise the tobacco tax by $1.50 (securing public health benefits), bring our fuel taxes up slightly from 50th among the states and adopt the internet tax legislation that other states have passed, we can more than offset our current year $878 million deficit, make a substantial down payment on a teacher pay raise and reverse a few of last year’s most punitive spending cuts.

It’s not hard; it just takes a little political courage. And it is the best path to improving our quality of life, reversing the brain drain and stimulating economic development.

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