The art of taxation consists in so plucking the goose as to obtain the largest possible amount of feathers with the smallest possible amount of hissing.
Around 20 years ago Oklahoma had the idea to be on the cutting edge of commercial space travel. Rocketplane, the company that was supposed to make this happen, was given $18 million in tax credits. Now, broken windows and crumbling walls are fairly common at the spaceport they built along with a few demolished warehouses. Though given money to make space travel happen, it failed. This malinvestment of tax dollars is common since the government acts with imperfect information to invest tax dollars.
There is clearly room for improvement in the level of taxation for Oklahomans. If the government has spaceport money, they have too much money. There are no good taxes and some are worse than others. Taxes alter production, limit economic growth, and hurt both consumers and sellers. A tax distorts pricing, not letting the market decide what a fair price should be. The increased cost of a tax changes what the market provides. Therefore, it’s imperative that taxes are their lowest feasible rate.
An average Oklahoman’s tax burden, adjusted for cost of living, is about 13% of their income in taxes for 2018. While this is not the most, it’s far from the least with Tennessee at 10.9% (adjusted for cost of living). This ranks Oklahoma as 13th among the states in terms of total taken in taxes.
Tax dollars are often used to fund some programs that only help a select few. From the quality jobs program, which helps some companies at the cost of others, to the aerospace tax credit, which helps foster growth in some industries rather than others. The film industry has also benefitted from tax credits for their production of movies in the state. All of these industries and jobs were funded through programs financed through tax dollars, sometimes even taxed from people who make less money than the jobs created through these programs.
The funds taken through taxation can be used to fund or benefit those who the government decides need the money. With the money taxed it changes how the market moves, and sometimes creates industries that would not be funded through the free market. Often these industries are out of place or they would be built without these tax incentives. If it made economic sense, the film industry would not need money to film here, they would have already started filming here. Government funding of industries is often all that different from trying to build a rainforest in the desert; it’s infinitely more expensive and they could just sell sand.
The latest example of government spending with the hope of fostering an industry is the more than $300 million given to Canoo, an electric vehicle company, in tax incentives. Though it is still unknown what Canoo was granted to locate to Oklahoma, it is clear that a lot of tax dollars were given to one company. There are claims it will bring 2,000 jobs to Tulsa, at a cost to taxpayers of $150,000 per job. The question that now should be asked is what jobs were not created by the $300 million that was taxed in the first place? If the $300 million were allowed to flow through the free market and was invested, it would have cascading affects into economic growth and the development of jobs.
If the Oklahoma government wants to create a prosperous and wealthy economy they should reduce the level of taxation. Rather than trying to incentivize companies to come here, it should proliferate economic development by helping those companies that do not need to be paid to come here. The lowering of taxes for everyone does just this, and makes Oklahoma a more business friendly state. By shrinking the size of government taxation, we will foster development, but we may have to say farewell to more deserted spaceports and new electric car companies that can’t make it without government largesse.
Jason Lawter is the Fiscal Policy Fellow at 1889 Institute. He can be reached at [email protected].