OKLAHOMA CITY - A new report claims Oklahoma has lost close to $500 million because of one of our state’s tax deductions.
The report by PFM Group Consulting LLC out of Philadelphia, PA said Oklahoma’s capital gains tax deduction has reduced state tax revenue by $474 million while only creating an estimated $9 million in additional tax revenue.
This deduction basically means, any time an Oklahoman sells Oklahoma-based property or stock, they are not taxed on the money they make.
The idea behind the deduction is lower taxation of capital gains will stimulate more investment and investment will grow the economy.
But, the report said that has not happened in Oklahoma.
"It's unaffordable. We're talking, on average, $90 million a year. That's a $1,500 per teacher pay raise,” said David Blatt with the Oklahoma think tank, Oklahoma Policy Institute.
Blatt said they’ve been saying, for years, this deduction needs to be repealed.
And, he said the timing of this report could affect any deal struck during the current negotiations while the special session is on hold.
"If you did away with this tax break on capital gains, that's 90 to $100 million depending on how that's scored that could be used to meet the goals of the special session," Blatt said.
"Taxes on income, on work, on productivity, taxes on people getting up and going to work, investing and doing something productive, wherever on the income spectrum they are - those types of taxes, if your state has them, are huge inhibitors to job creation,” said Dave Bond with Oklahoma Council of Public Affairs.
Bond said, like it or not, we compete with neighboring states like Texas, where there is no income or capital gains tax.
"So, we're at a competitive disadvantage if we roll this deduction back. Why would we unilaterally disarm right next to the biggest economy in our region?" Bond said.
The report also found the majority of people using the deduction make more than $200,000 a year.
"These are people who don't have, you know, are not struggling," Blatt said.
But, lawmakers are struggling to fill our budget hole.
The report is just one more thing they may be considering as they figure out the best way to do this.
The report did state there was insufficient evidence to determine the level of direct new economic activity and job creation associated with the deduction.
Mike Jackson, EVP of Government and Political Affairs for the Oklahoma State Chamber of Commerce sent us this statement about the report:
“The State Chamber of Oklahoma has policy supporting the capital gains deduction. We believe Oklahoma families and businesses should reap the benefits from their investment and hard work. Taxing capital gains can discourage investment in the state at a time when additional job creation and innovation are so badly needed. We are disheartened to see the consultants make this recommendation to the IEC based on a lack of specific data. We look forward to participating in the process and continuing to provide input from Oklahoma's business community.”
The Oklahoma Incentive Evaluation Commission will take a look at the report and ultimately make a recommendation to the governor and legislature.
They will hear from the consultants about their findings at their next meeting on October 12.