Bigger government can mean working-class strain

IN a recent release, a left-leaning think tank says Oklahoma has effectively become a high-tax state for poor and middle-income Oklahomans. Left unsaid is that by advocating for increased government spending, groups like it have indirectly incentivized adoption of the tax policies it now suggests hammer the poor.

The Oklahoma Policy Institute bases its critique on a “Who Pays” report from the liberal Institute on Taxation and Economic Policy that concluded the poorest Oklahoma households pay 2.1 times as much of their incomes in taxes as do the wealthiest 1 percent, and the poorest 20 percent of Oklahoma households pay the fifth-highest taxes as a share of their incomes — 13.4 percent — in the country.

Yet if you want bigger government and large increases in state spending, somebody has to pay the bill. OK Policy and ITEP both argue for taxing “the rich” even more. Yet there simply aren’t enough truly wealthy people in Oklahoma to achieve the revenue amounts that advocates desire, and when rates are raised too high the truly wealthy can leave.

In such debates, activists often cite $100,000 as the demarcation between the middle class and wealthy. Oklahoma Tax Commission records show just 17 percent of filers in 2016 had income above $100,000, and only 0.7 percent were millionaires. Moreover, according to Census estimates, half of Oklahoma households have income of $48,038 or less. Trying to fund a government by heavily taxing such a small slice of the population without the rest of the population footing the bill is mathematically impossible. When states target upper-income families, the results are often counterproductive. OK Policy argues Oklahoma should impose higher taxes on wealthier families. Connecticut, which has a much higher share of wealthy households than Oklahoma, has done just that. In January, a Hartford Courant editorial summarized the results: “Connecticut’s money is moving out — and a lot of it is moving to Florida.” IRS data showed Connecticut experienced a net loss of $2.7 billion in income in a single year due to wealthy residents fleeing.

In its release, OK Policy decries Texas as the only state neighboring Oklahoma with a “more regressive tax system” because it has no income tax. Yet Texas has long enjoyed strong economic growth that benefits all citizens, and IRS data compiled by the “How Money Walks” organization shows Texas has enjoyed a net gain in income from migration while Oklahoma has experienced a net loss from outmigration. Former Oklahomans with combined income of more than $1.5 billion are now Texas residents, according to the data.

As wealthy citizens leave a state, a greater share of the tax burden shifts to the less wealthy out of necessity. There are ways to reduce the tax burden on working families, and OK Policy highlights some suggestions. But that tax relief comes at the expense of greater government spending.

As the saying goes, “free” government stuff comes at a high price. And part of the unavoidable trade-off of bigger government is greater financial strain for the working class.