Nixing state income tax boosts opportunity

If the classic 1940 movie “Grapes of Wrath” were remade for 2012, the Joad family would be trekking, instead, from California to Oklahoma. Based on the 1939 novel by Californian John Steinbeck, the movie showed the Joads suffering through the 1930s Great Depression and Dust Bowl in Oklahoma, then striking out for the Golden State and its verdant fields, suffering numerous hardships along the way.

Today, Oklahoma is more of a land of opportunity. The Sooner State is phasing out its income tax to attract more businesses. National Review reported that the plan was developed by economist Arthur Laffer and the Oklahoma Council of Public Affairs, a free-market think tank. Mr. Laffer helped design California’s Proposition 13 tax cuts in 1978, and President Ronald Reagan’s tax cuts of the 1980s, both of which laid a foundation for decades of prosperity.

“Their study found that phasing out the state income tax would more than double personal-income growth, boost the size of Oklahoma’s economy by more than 20 percent and create an additional 312,000 jobs over the next decade,” the magazine reported. The current top income-tax rate in Oklahoma is 5.25 percent. The plan “cuts it to 2.25 percent in 2013, and then cuts it by an additional 0.25 percentage points each year, until the income tax is fully repealed in 2022.”

“But you have to be careful because increases in other places could be more harmful,” warns Esmael Adibi, Director of A. Gary Anderson Center for Economic Research at Chapman University. For example, if revenue drops too sharply from the tax cuts, Oklahoma later might increase sales taxes, “which are extremely regressive. You have to look at the net” of increases vs. cuts.

The tax cuts will make Oklahoma “more attractive compared to other states” for business growth, Adibi said. “More money will be left for people to spend, which could generate more revenue in terms of economic activity.”

Indeed, Oklahomans are jealous about the more robust economic growth in adjoining Texas, which has no state income tax.