Economists Urge State to Review Tax Incentive Programs

Article excerpt

Oklahoma's tax incentives have often been developed ad hoc and should be reviewed to maximize their efficiency, according to a panel of Oklahoma economists.

That same panel said lawmakers need to re-examine the state's tax structure to ensure it encourages long- term economic growth. And, as part of that effort, policy-makers need to shift their focus from simply generating new jobs in Oklahoma to fostering wage growth in existing jobs.

Those findings were included in the Oklahoma 21st Century Report presented Friday. The report was compiled by five economics experts: Kent Olsen, professor of economics at Oklahoma State University; Larkin Warner, regents professor emeritus of economics at OSU; Robert Dauffenbach, professor of management information systems and director of the Center for Economic and Management Research at the University of Oklahoma; Alexander Holmes, a regent's professor of economics at OU; and Stephen Smith, professor of economics at Rose State College.

Oklahoma 21st Century is an affiliate of The State Chamber.

The five economists noted that while Oklahoma "appears to be providing adequate resources for economic development in the form of tax incentives," they said the state does not know how much money is being spent on those incentives or how large future commitments will be as a result. That lack of available data prevents state officials from knowing if incentives "have altered the distribution of resources in the economy or increased state output."

"There are probably some specific ways that we can improve Oklahoma's tax incentives, but we need to identify those more carefully," Olsen said. "This is not a plea, I don't think in any shape or form, to throw out our tax incentives or even to eliminate any specific tax incentives."

He said the state needs to track and evaluate the impact of tax incentives to determine their effectiveness.

One problem with the state's tax incentive programs is that there has never been an overriding objective guiding their creation, Smith said.

"We seem to hop on every train that comes through town and we don't know where the hell we're going," he said.

The panel noted that most states in the region have struggled with economic growth in recent years, including Missouri, Kansas and Arkansas, but Smith pointed out that Oklahoma has been "trolling at the bottom." He said that problem is made worse by the lack of an overriding objective when lawmakers design incentives.

"An awful lot of these incentives seem to be geared at a very quick rate of return and our policies have been far more tactical than strategic," he said.

Smith stressed that issues of "human capital and physical capital" are "generational" and require long-term thinking, including the development of "a sound, efficient tax system" that will foster business infrastructure development.

Even as policy- makers examine Oklahoma's tax incentives, Olsen said they need to keep the big picture in mind as well.

"I think incentives are necessary but not sufficient," he said, adding that "attention to the tax system may be more important than attention to tax incentives."

"You're not going to do it with a host of tax incentives alone unless you've got the tax system right," Olsen said.

Holmes said that if a state does not have a package of targeted tax incentives comparable to those offered in surrounding states, competitors "will use that against you" to attract businesses. …