Incentive review shows value of tax simplicity

THIS year, the state’s Incentive Evaluation Commission reviewed 12 state economic tax incentives and ultimately voted to repeal five. Revenue increases associated with those repeal votes will be relatively minor. Instead, the biggest impact of the commission’s work may be that it reinforces the fact that politicians have a poor record when it comes to identifying and nurturing job creation via targeted tax breaks.

In some instances, breaks have been designed to support companies that are producing fewer jobs than those produced by non-taxpayer supported industries. The commission found this was the case even for the Quality Jobs Act, generally considered one of the state’s better business-incentive programs.

The commission’s final report notes, “Industries incentivized by Quality Jobs have shown slower growth in employment and annual average pay over the last five years, compared to the State as a whole. Employment in incentivized industries contracted by 2.9 percent, while the State as a whole expanded by 2.5 percent.”

The report reveals that Quality Jobs payments during the past five years “have gone to industries lagging behind State growth in employment and annual average pay.” In fact, only 27 percent of payments went to establishments with growth in employment, total wages and average annual wage that exceeded state averages.

The commission reached similar conclusions regarding the Small Employer Quality Jobs program. “The industry group decreased employment over the last five years, as overall State employment expanded.”

Since 1987, Oklahoma has offered a Home Office Tax Credit to insurance companies that establish home or regional home offices in Oklahoma and meet certain employment levels. The Incentive Evaluation Commission’s final report notes, “The credit appears to have had little impact on the State’s insurance industry employment in recent years. Insurance industry employment in Oklahoma has declined by 4.2 percent since 2001, while neighboring states, most of which do not have a similar home office incentive, have experienced growth ranging from 6 to 30 percent.”

Other credits fared worse, or lacked sufficient data to even measure their worth.

Oklahoma has had a High Impact Quality Jobs program since 1994. The commission found the incentive “has never been used” and the state Department of Commerce “no longer promotes the program on its website due to lack of interest.”

The debate over Oklahoma’s capital gain deduction was marred by what the commission deemed a “dearth of data.” The group also reported there is “insufficient data to accurately estimate or verify the total economic or tax revenue impacts of the cleanburning fuel vehicle credit.”

Then there’s the Ethanol Fuel Retailer Tax Credit. The commission reports, “Based on the economic and fiscal impact analysis, it appears the annual incentives offered under this program exceed the tax revenue generated by additional household spending by Oklahoma residents.”

The commission’s work reinforces the value of tax simplicity. Keeping tax rates low, applying them evenly across the board, and then letting market forces determine individual companies’ success or failure works better than depending on politicians to somehow “guide” the process.