The Oklahoma Supreme Court recently approved a ballot measure (779) that will, if approved by voters, increase the state sales tax by 1 percent. The new revenue would be earmarked to fund $5,000 pay raises for Oklahoma teachers and provide support for the state's colleges and universities. The question before the court was whether the proponents had gathered the requisite number of signatures; the court said yes. But the tax issue is much more interesting.
Here's what we know. Oklahoma pays its teachers poorly. It ranks 48th among the states, according to the National Education Association. I'm not sure if there's a set of public employees more undervalued than teachers, so let's stipulate that they need a raise in Oklahoma.
Is the sales tax the way to fund higher teacher pay? We know the sales tax is regressive. Poor people in Oklahoma will be paying relatively more for those higher teacher salaries than the rich. From a distributional perspective, one could argue that increasing the income tax would be fairer, but let's face it, there's little appetite among the public or politicians to raise personal income taxes. You could try to have some kind of millionaire's tax, but there just aren't enough millionaires to pay the teachers. Another problem with the increase is that it will create the highest combined state and local sales tax rate in the country, at 9.82 percent. That's awfully high. And the danger with a high sales tax is that people tend to shop less.
That said, a broad-based sales tax increase is better than using excise taxes, gambling, or other political gimmicks to fund important government services. What's strange about Oklahoma public finance is that the state relies so little on the property tax. The state collects about half the national average per capita in property taxes. I'm a property tax fan. It's a good way to pay for local government services. It's a good way to pay for education. I think that giving local governments and school districts the ability to rely more heavily on the property tax would be a fairer and more efficient way of raising money for schools. It's not a panacea. The property tax leads to fiscal inequities, but there's no reason for a state like Oklahoma to ignore a solid source of revenue. CQ Press recently released its rankings of state finances, and inexplicably, Oklahoma was number two in the country! I guess that would be true if your ranking is based on not really having a property tax.
In any case, Oklahomans will get to decide whether they want to pay their teachers more -- and if they are willing to pay more sales tax to get there.
(A version of this post first appeared in State Tax Notes.)