Perspective - May 2011

May 2011 • Volume 18 Number 5

ALSO IN THIS ISSUE Oklahoma’s bureaucratic-overhead problem persists Page 7 ‘A never-ending meteor shower’ of taxes Page 8 Oklahoma’s small private sector masks true tax burden Page 9 How to solve Oklahoma’s college affordability problem Page 10 Pensions for politicians Page 11 Lawsuit reform in Oklahoma: Where we’ve been, where we’re going Page 12

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C A S E

Y O U

M I S S E D

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Brandon Dutcher

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he Wall Street Journal spotlighted Gov. Mary Fallin for “relying on markets” and rejecting a federal Obamacare grant. http://on.wsj.com/fpyB2Z State Treasurer Ken Miller says many Oklahoma schoolteachers are double-dipping: “Approximately one-third of all teachers who retired in 2008 were reemployed with a school the following calendar year.” http://www.ocpathink.org/articles/1141

A U.S. Congressman wants a ticking national-debt clock installed on the House floor. http://bit.ly/eyAenQ A new report says the conventional wisdom—that it costs Oklahoma colleges more to provide an education than what a student actually has to pay—is wrong. http://www.ocpathink.org/articles/1135 A national reading expert says Supt. Janet Barresi is “extraordinarily competent.” http://bit.ly/fSVUXS Oklahoma government spending is at an all-time high. http://bit.ly/gRAff7 Oklahoma Panhandle State University employs a “rodeo coach” whose salary just doubled—from $50,000 to $100,000. http://bit.ly/i3HLnc Hispanics in substantial numbers can and should be brought to embrace conservative principles. http:// spectator.org/archives/2011/04/13/hispanic-conservatives/

Paul Ryan suggests cutting corporate welfare for farmers. http://bit.ly/eMRnbK

Perspective May 2011 Vol. 18, No. 5 Brandon Dutcher ......................... Editor Perspective is published monthly by the Oklahoma Council of Public Affairs, Inc., an independent public policy organization. OCPA formulates and promotes public policy research and analysis consistent with the principles of free enterprise and limited government.

Langston University, a traditionally black college, touts scholarships for “students of non-African American origin.” http://bit.ly/gIsGcI In England, the former director of the National Health Service died after her operation was cancelled four times at her own hospital. http://bit.ly/h50RHk At Thelma Parks Elementary School in Oklahoma City, a student tied a preschooler to a pole and covered his mouth with duct tape. http://bit.ly/fHOzu8 OCPA’s Milton Friedman Distinguished Fellow says city dwellers should embrace school choice. http://bit.ly/ eZvXrW

One of OCPA’s sister think tanks recently received death threats and bomb threats. http://bit.ly/g99nJ9 Stephen Moore, senior economics writer for The Wall Street Journal editorial page, says “more Americans work for the government than in manufacturing, farming, fishing, forestry, mining, and utilities combined.” http://bit.ly/edb4ay Peter Brimelow says public-sector unions, unthinkable even to the likes of George Meany and FDR, “are simply not a sustainable life form.” http://bit.ly/enHFRK Washington Post education columnist Jay Mathews opposes school vouchers, but he acknowledges that the empirical evidence shows they work. http://wapo.st/ hAC6Yf

OCPA TRUSTEES Blake Arnold • Oklahoma City Lee J. Baxter • Lawton Steve W. Beebe • Duncan G.T. Blankenship • Oklahoma City John A. Brock • Tulsa David R. Brown, M.D. • Oklahoma City Aaron Burleson • Altus Paul A. Cox • Oklahoma City Jay T. Edwards • Oklahoma City William Flanagan • Claremore

Josephine Freede • Oklahoma City Kent Frizzell • Claremore Ann Felton Gilliland • Oklahoma City John T. Hanes • Oklahoma City Ralph Harvey • Oklahoma City John A. Henry III • Oklahoma City Henry F. Kane • Bartlesville Robert Kane • Tulsa Gene Love • Lawton Tom H. McCasland III • Duncan

David McLaughlin • Enid Lew Meibergen • Enid Ronald L. Mercer • Bethany Lloyd Noble II • Tulsa Robert E. Patterson • Tulsa Bill Price • Oklahoma City Patrick T. Rooney • Oklahoma City Melissa Sandefer • Norman Richard L. Sias • Oklahoma City John F. Snodgrass • Ardmore

Charles M. Sublett • Tulsa Robert Sullivan • Tulsa Lew Ward • Enid William E. Warnock, Jr. • Tulsa Gary W. Wilson, M.D. • Edmond Daryl Woodard • Tulsa Daniel J. Zaloudek • Tulsa

OCPA STAFF Michael Carnuccio ......................... President Brett Magbee ..................... VP for Operations Brandon Dutcher ....................... VP for Policy Margaret Ann Morris ...... VP for Development Jason Sutton, J.D. ....... Policy Impact Director Dacia Harris .......... Interactive Media Director Jonathan Small, CPA ... Fiscal Policy Director Jennie Kleese ... Development Events Manager Bob Provine ................................... Controller Clara Wright .............. Hospitality Coordinator

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OCPA FELLOWS

OCPA ADJUNCT SCHOLARS Will Clark, Ph.D.

Russell W. Jones, Ph.D.

Bruce Newman, Ph.D.

J. Rufus Fears, Ph.D.

University of Oklahoma

University of Central Oklahoma

Western Oklahoma State College

David Deming, Ph.D.

Andrew W. Lester, J.D.

Stafford North, Ph.D.

University of Oklahoma

Oklahoma City University (Adjunct)

Oklahoma Christian University

Dr. David and Ann Brown Distinguished Fellow for Freedom Enhancement

Bobbie L. Foote, Ph.D.

David L. May, Ph.D.

Everett Piper, Ph.D.

J. Scott Moody, M.A.

University of Oklahoma (Ret.)

Oklahoma City University

Oklahoma Wesleyan University

Research Fellow

Kyle Harper, Ph.D.

Ronald L. Moomaw, Ph.D.

Michael Scaperlanda, J.D.

Andrew C. Spiropoulos, J.D.

University of Oklahoma

Oklahoma State University (Ret.)

University of Oklahoma

Milton Friedman Distinguished Fellow

E. Scott Henley, Ph.D., J.D., D.Ph.

Ann Nalley, Ph.D.

Quentin Taylor, Ph.D.

Wendy P. Warcholik, Ph.D.

Oklahoma City University (Ret.)

Cameron University

Rogers State University

Research Fellow

PERSPECTIVE • MAY 2011

Look who’s talking.

OCPA’s OCPA’s speakers speakers don’t don’t disappoint. disappoint.

Larry Arnn

John Bolton

William F. Buckley, Jr.

Gov. Jeb Bush

Dinesh D’Souza

J. Rufus Fears

Steve Forbes

Tommy Franks

Steven F. Hayward

David Horowitz

Edwin Meese III Memorial Day • May 30, 2011 Fort Sill Patriot Club To sponsor a soldier, call (405) 602-1667

John Fund

Newt Gingrich

Laura Ingraham

Gov. Frank Keating

Jeane Kirkpatrick

Rich Lowry

Stephen Moore

Peggy Noonan

Marvin Olasky

Gov. Bill Owens

Gov. Sarah Palin

Star Parker

Michael Reagan

Rep. Paul Ryan

Joe Sobran

Thomas Stafford

John Stossel

Cal Thomas

John Walton

J.C. Watts

Walter Williams

Clarence Thomas Sen. Malcolm Wallop

Taxation through the Ages Brandon Dutcher talks taxes with OCPA distinguished fellow J. Rufus Fears Dutcher: You have pointed out many times that the United States enjoys a level and a blend of freedom that is unique in history. If one reflects upon the freedoms we enjoy, I think any response other than gratitude would be unbecoming. Nevertheless, at the risk of sounding ungrateful, I do think it’s important that we discuss our tax burden. Last year Tax Freedom Day arrived in Oklahoma on April 6—that is to say, the average Oklahoman had to work 96 days to earn enough money to pay the federal, state, and local tax collectors. That’s more than 25 percent of his or her income. [In 2011, it was April 2.]

In a recent lecture you pointed out that the first true work of history was not Herodotus but rather Samuel.

So I’m reminded that when Israel asked Samuel to give them a king like all the other nations had, Samuel said, in effect, you better be careful what you’re asking for. If you have a king he’ll conscript your sons and so forth, and worse yet he could give you a tax burden that—brace yourself—could go as high as 10 percent.

I’m sitting here thinking 10 percent would look pretty good right about now.

Dr. Fears: Yes, we have achieved in this country a unique balance of individual freedom, political freedom, and national freedom. And we have to pay for that in taxes. However, Samuel is not the first to talk about taxes. In point of fact, the very birth of civilization in Egypt and in Mesopotamia—and that’s where civilized life first began around 3000 B.C.—led to taxes, and it led to the invention of writing. Almost simultaneously, in what we call Iraq today, and in Egypt around 3000 B.C., writing just appeared. And it’s almost as though the king of Uruk, or Ur of the Chaldeans as we read about in Genesis, or the Pharaoh of Egypt, the first king Pharaoh Menes, said to his staff: I’ve got to have a way of keeping up with the taxes people are paying, and I’ve got to have a permanent record, and I want it on my desk by close of business on Friday. And they sat down and came up

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with it. And that is the first preserved writing we have from Egypt: taxation records—who owes what and whether they have paid it.

In the cities of Iraq in the Tigris and Euphrates river valley, the priests served as tax collectors for the king and, theoretically, for the god. You paid your taxes, and 10 percent is about what you paid. So 10 percent was a standard amount of taxes to pay in Egypt and in the early Middle East. It is interesting that as the book of Genesis goes along Pharaoh comes to a better understanding of how much taxes he can get. He has an enormously capable grand vizier, or second-in-command, Joseph. He realizes he can raise taxes. And in a time of famine, when the people of Egypt have almost nothing, the first statement of course of a benevolent government is that it will give the people grain to eat but they do have to pay for it. And when all their money is gone the next year, they have to give their flocks, sheep, and cows. And when there is nothing left, well, you have to give me all your land and I’m going to keep from that each year 20 percent.

So the 10 percent might have looked pretty good to the Israelites as compared to the 20 percent, but the 20 percent would look good to us. And that 20 percent, in the words of Genesis, made the Egyptians slaves of their Pharaoh because they had to work so long each day just to pay their taxes.

Dutcher: And they weren’t merely slaves to a king, but to a king who was thought to be a deity, a god-man. So they pay 20 percent to a deity and they are slaves, yet we pay 25 percent to mortals and we consider ourselves free. Does that strike you as ironic?

Dr. Fears: Well it does, and it’s also that they had a certain accountability. That is to say, if the rains didn’t come or if the Nile didn’t rise, then they would riot against Pharaoh because it was his job to make the land fertile. We don’t have the accountability from government for our taxes today.

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And as we go on through the history of the world, we find the first democracy in history, ancient Athens.

Like us, Athens achieved a blend of national freedom (freedom from foreign rule), political freedom (freedom to vote, freedom to hold office), and individual freedom (freedom to live as you choose as long as you harm no one else). And in fact that was the definition of the democracy to the Athenians—their freedom to live as they chose as long as they harmed no one else.

However, Aristotle defined that democracy as a systematic plan to redistribute the wealth. And for Aristotle that was the difference between a good constitutional free government and a radical democracy.

The good constitutional government apportions taxes equally.

The radical democracy wanted it redistributed by a graduated income tax, and particularly by what we might compare to a high marginal income tax, the way we used to Boston Tea Party, 1773 have in this country.

Wealthy people in this country at one point would pay 91 percent marginal taxes. In ancient Athens they would have to build a battleship, and that would be about a million dollars in today’s currency. And not only did they have to pay for its being built, they also had to serve on it to make sure they didn’t cut corners.

The other heavy tax that was put only on the wealthy was called a liturgy for the dramatic performances.

And there wealthy people did not mind because they got great recognition for putting on these plays by Sophocles. But nonetheless, it was a heavy economic burden placed upon the wealthy.

The Romans had a typically practical attitude towards taxes. When they became the world superpower by the year 167 B.C., Roman citizens simply

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stopped paying taxes. They said, there is no way we are going to protect the world and also pay taxes. So they had no taxes well into the time of the first Caesars. And that was when one of the great hallmarks of being a Roman citizen, say in the age of Paul, was that you didn’t have to pay taxes. The majority of the inhabitants were not citizens—that’s why Paul was so proud of his status as a citizen. However, they worked two days a year to pay their taxes. And for that, they got the most cost-efficient and best army the world had ever seen, peace and prosperity that in many parts of the Middle East has still not been equaled, a superb network of roads, a free-market economy, and social mobility. Two days a year. Now let’s compare that to the 96 days you told me about.

Dutcher: Let’s jump forward to the American colonists in, say, 1775. They were possibly the freest, most lightly taxed people in the world. And yet they took up arms in a tax revolt.

Dr. Fears: Yes, the American Revolution, from the point of view of King George, was about taxes. As he said to Parliament, the issue is the Americans won’t pay taxes. And Edmund Burke, the famous orator and lover of freedom, stood up and said, that is indeed the issue. Touch an Englishman in a hundred places about his freedom and he will not squawk. Touch him in his pocketbook with unfair taxes, and he will revolt.

And when he ceases to be so sensitive about his taxes, he will cease to be worthy of his freedom. That is what got King Charles in so much trouble with Parliament, the question of taxes and his refusal to be accountable for the taxes he raised.

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Thus it was that this idea came across with our lightly taxed people would take up arms seems bicolonists, and when the troubles began after 1763 at zarre and almost incomprehensible to us today. the end of the French and Indian War, the British government had a legitimate issue. That is to say, it had Dr. Fears: Well, when I teach my classes, they find it fought to defend the colonies (though the colonies had very hard to relate to the founders of our country. Not provided large numbers of troops) and it had incurred just to men like George Washington, but also to the a huge debt. And it wanted the colonies to pay that average American who would take up a musket and debt. And part of the issue was that the colonists felt go out to fight his fellow countrymen, British soldiers, that they were not represented in Parliament and over the question of taxation. But to them, the ability of hence there was no accountability, but also they did a government to tax was its ability to control your not want to pay taxes. And yes, they thought 10 perproperty, and your property was a sacred right. Life, cent was far too high. So our Revolution came over the liberty, and the pursuit of happiness, but a crucial part issue of Americans being unwilling to pay taxes to an of that happiness, as Thomas Jefferson himself said, is unresponsive government which did not want to give your right to keep and use as you wish the fruits of your them a say in how the own labor. We have lost money was spent. And that sense of property. We there we have a real pardo not value property We do not value property allel with today. rights the way the But after we won our infounders of our country rights the way the founders dependence we realized did. of our country did. you do have to pay some Even Cicero, in the first taxes to protect yourself, century B.C., said that a and our Constitution respect for property rights came into effect in considerable part in order to prois the true foundation of freedom. Now in the Constitutect our political freedom but also to ensure a stable tion the founders wrote a section on taxation in such a economy. Congress is given a broad power to tax unway that an income tax was impossible. They thought der that Constitution. In his farewell address, George that an income tax was a restriction upon your freeWashington told his fellow citizens that there was no dom. They also believed that tapping your income at form of taxation that would not be inconvenient. We its source for taxes was most onerous. It was known in had to pay taxes. We pay taxes in wartime to defend places like the Russian Empire, where the czar took ourselves, and in peacetime we pay taxes to pay off his 20 percent before the peasant got anything. But to that debt. Now there again, we have wandered far the founders this was the denial of freedom. Our first from the wisdom of the founders to run up huge debts real income tax came during the Civil War. We’ve even in peacetime. And Washington and his advisor talked about this before, but I believe that Abraham Alexander Hamilton would have told you that regardLincoln was one of our greatest presidents. But he was less of changes in technology and the economy, a naalso a founder of the Progressive movement. His idea tion cannot be a pauper over the long term. It must was that the community should do for the individual have a sound and stable currency resting upon gold what the individual cannot do (or do as well) for himand silver and it must not be a debtor nation for a long self. Part of this was taxes, so an income tax was introperiod of time. duced during the Civil War. It was then later ruled by the Supreme Court to be unconstitutional. And so it Dutcher: What has changed? It’s as if we don’t even was that one of the key features of the Progressive speak the same language as our forebears. That such movement of Theodore Roosevelt or of Woodrow

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PERSPECTIVE • MAY 2011

Wilson was an income tax. The constitutional amendment was ratified in 1913, and its rate has steadily increased since.

But we the people—and that’s how our Constitution begins—we have the power to reverse this trend in taxation. All we need to do is elect representatives and senators who will cut back government spending on a massive scale—and it can be done—and then accordingly reduce taxes. We have allowed our government to tax us so heavily. We are still free individuals, but we don’t want to exercise that responsibility because everyone has a worry that, “yes, but this entitlement I’m getting might be cut back, or that entitlement might be cut back,” and so we the people tax ourselves.

Dutcher: It’s as if we’re looking to a deified government to give us our daily bread, just as the ancients looked to their god-man.

Dr. Fears: That’s how Pharaoh became a god, and that’s how the kings of cities like Uruk and Ur came to be seen as the chosen of god on earth: They provided security. They were able to organize the labor forces

that could irrigate the land in order to ensure that the crops grew. They could ensure that the people of Egypt or the people of the city of Ur were protected from aggressive enemies. And all through history, again and again, people have chosen the perceived security of a despot over the awesome responsibility of self-government. The men and women who would not pay these taxes to the King of England did not expect the King of England to give them free medical care. They did not expect the King of England to give them free schools. They did not expect the King of England even to give them decent roads. If they wanted a decent road, a contractor would go out and build it, put a pike in front of it, and they would have a turnpike where they paid the toll. They did not expect the King of England to give them retirement benefits or, if they were unable to find a job or lost their farm, to step in and pay for it. So they had the self-responsibility which we do not want.

Dr. J. Rufus Fears, a classics professor at the University of Oklahoma, serves as the Dr. David and Ann Brown Distinguished Fellow for Freedom Enhancement at OCPA. Brandon Dutcher is OCPA’s vice president for policy.

Oklahoma’s Bureaucratic-Overhead Problem Persists

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ecently in The Oklahoman, OCPA adjunct scholar Russell Jones, a marketing professor at the University of Central Oklahoma, took aim at the notion that “our economic difficulties would disappear if we hired more government workers.” To do so, Jones pointed out, “we’d have to take money from taxpayers and no new value would be created. No one spends money more efficiently than those who earn it. A taxpayer will buy more value with a dollar he earns than the government will with a dollar it takes from a taxpayer.”

Indeed, Jones said, Oklahoma already ranks 14th among the 50 states in the number of government employees as a percentage of the population, according to the U.S. Census Bureau. “Oklahoma governments

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have 18,048 more full-time equivalent employees than our population justifies,” he pointed out. “These employees are paid $709,018,036 per year. I fail to see how adding to these numbers would benefit Oklahoma.”

Moreover, according to a news report March 2 in USA Today, Oklahoma’s public employees earn higher average pay and benefits than Oklahoma’s privatesector workers. Using data from the Bureau of Economic Analysis, USA Today reported that average public-sector compensation (including salaries and benefits) in Oklahoma in 2009 was $47,258, which was $1,667 greater than the compensation of Oklahoma’s private-sector workers.

—Editor

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Taxes, Taxes, and More Taxes: ‘A Never-Ending Meteor Shower’

By Jonathan Small, CPA

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taxes) and the Oklahoma Comprehensive Annual Financial Report (for state taxes), I can compile a pretty thorough list. Still, this doesn’t cover your local taxes (property taxes, sales taxes, hotel lodging taxes, etc.).

And don’t even get me started on the 20 new or higher taxes in the Obamacare law.

If I’ve neglected to list any of your personal favorites, please write to me. In the meantime, enjoy the meteor shower!

ormer U.S. Senator Zell Miller, a Georgia Democrat, once noted that “government takes too much from our taxpayers—big and little alike. Federal-statelocal taxes come at us from every direction. It’s like a never-ending meteor shower.”

As OCPA has pointed out before, meteor showers can sometimes produce so many meteors that it can be difficult to count them all. Same with taxes. Now, using the CCH 2010 U.S. Master Tax Guide (for federal

Federal • Individual Income Tax • Alternative Minimum Tax • Corporate Income Tax • Corporate Alternative Minimum Tax • Capital Gains Tax • Estate Tax • Gift Tax • Social Security Tax • Medicare Tax • Gasoline Taxes • Gasohol Taxes • Special Fuels Taxes • Luxury Items Tax (passenger vehicles) • Heavy Trucks and Trailers Taxes • Highway-Type Tires Taxes • Gas Guzzler Taxes • Communications Taxes (telephone and tele-typewriter service, prepaid telephone cards)

• Air Transportation Taxes (domestic passenger tickets, international passenger tickets, air freight waybill) • Water Transportation Taxes (persons, port use tax on imports) • Tobacco Taxes (cigarettes, cigarette papers, cigarette tubes, cigars, snuff chewing tobacco, pipe tobacco, rollyour-own tobacco) • Wagering Taxes (state authorized wagers placed with bookmakers and lottery operators, license fee on person accepting wagers) • Highway Motor Vehicle Use Tax • Firearms Taxes (transfer taxes, occupational taxes, pistols and revolvers, other firearms, ammunition) • Electric Outboard Motors and Sonar Devices Tax • Sport Fishing Equipment Tax • Arrow Component Parts Taxes • Bows Tax • Coal Taxes (underground mines, surface mines) • Vaccines Tax

State of Oklahoma • Aircraft Excise Tax • Alcoholic Beverage Excise Tax • Beverage Tax • Bingo Tax • Charity Games Tax • Cigarette Tax • City Use Tax - Collect/Deposit • Coin Operated Device Decal • Controlled Dangerous Substance Tax • County Tax (Use & Lodging) • Diesel Fuel Excise Tax • Documentary Stamp Tax • Farm Implement Tax Stamps • Franchise Tax • Freight Car Tax • Gaming Exclusivity Fees • Gasoline Excise Tax • Gross Production Tax - Oil and Gas • Horse Track Gaming • Income Tax (Individual) • Income Tax (Corporate)

• • • • • • • • • • • • • • • • • • • • • •

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Inheritance and Estate Tax Insurance Premium Tax Mixed Beverage Gross Receipts Tax Occupational Health and Safety Tax Pari-Mutuel Taxes Pari-Mutuel - Other Tax Petroleum Excise Tax Rural Electric Co-operative Tax Sales Tax Special Fuel Decal Special Fuel Use Tax Tag Agent Remittance Tax Telephone Surcharge Tobacco Products Tax Tourism Gross Receipt Tax Tribal Compact in Lieu of Tax Payments Unclaimed Property Tax Unclassified Tax Receipts Use Tax Vehicle Revenue Tax Stamps Workers’ Compensation Awards - Assessments Workers’ Compensation Insurance Premium Tax

PERSPECTIVE • MAY 2011

Oklahoma’s Small Private Sector Masks True Tax Burden

By J. Scott Moody and Wendy P. Warcholik

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ith April 15 behind us, the dreadful thoughts of taxes will soon fade from memory. Yet personal income taxes are only a small part of the tax load that all Oklahomans must bear. This means that paying taxes is really a year-round affair, which makes understanding the tax burden a difficult task.

Building on previous research we have done on Oklahoma’s tax system, in this article we will look at how long it takes the average Oklahoman to pay his or her state and local (S&L) government tax bill. To fully answer that question we must first delve into determining the proper measure of the “tax burden.”* Under standard tax burden calculations, Oklahoma’s S&L tax burden as a percent of personal income was 9 percent in 2008. Relative to all other states, Oklahoma has only the 43rd highest S&L tax burden in the country, and is below the national average of 10.5 percent. Regionally, Oklahoma ranks on par with Colorado (44th), Missouri (45th), and Texas (46th) and better than Arkansas (31st), Kansas (21st), and New Mexico (8th).

However, this standard methodology is imperfect because personal income includes both private and public sector sources of income. Yet the distinction between the two sectors is important because only the private sector creates new income. The public sector can only redistribute income through taxes and spending. More specifically, public sector spending consists of personal current transfer receipts (Medicare, Medicaid, Social Security, etc.) and government employee compensation (federal, state, and local).

As our previous research has shown, Oklahoma’s private sector as a percent of personal income was a dismal 63.5 percent in 2010—the 12th smallest private sector in the country. Oklahoma’s private sector is also well below the national average of 68.7 percent.

In the long run, this affects overall economic well-being since, on average, a 1 percentage point increase in the size of the private sector yields an increase in household income of $2,617.

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Therefore, a more appropriate measure of Oklahoma’s tax burden is as a percent of private sector personal income. Under this measure, Oklahoma’s tax burden soars to 13.3 percent of private sector personal income. In fact, Oklahoma’s tax burden as a percent of private sector income is 48 percent higher than when measured as a percent of personal income—the 11th highest differential in the country.

Additionally, the gap between the two measures has been growing steadily over time. In 1951 the S&L tax burden as a percent of personal income was 8.2 percent while as a percent of private sector income it was 10.5 percent—a difference of 28 percent. Clearly the standard calculations make Oklahoma’s tax burden appear smaller than it really is.

Therefore, with a clearer method of accounting for Oklahoma’s S&L tax burden, we can turn our attention to examining how long it takes to pay off this tax bill.

Taking the S&L tax burden as a percent of the calendar year shows that the average Oklahoman, in 2008, worked until February 17 to pay off his or her tax bill.

This is significantly higher than back in 1951 when Oklahomans were done on February 7—a full 10 days earlier—but lower than the record date of February 22, which was last set in 1995.

What would policymakers have to do to reduce the S&L tax burden on Oklahomans back to 1951 levels?

In 2008, S&L governments collected $12.1 billion. Adjusting that figure to equate to 10.5 percent of private sector income would mean a reduction in spending of $2.6 billion to $9.5 billion. Then Oklahomans could once again celebrate paying off their tax bill 10 days earlier, just as previous generations have done.

Economists J. Scott Moody (M.A., George Mason University) and Wendy P. Warcholik (Ph.D., George Mason University) are OCPA research fellows. *The state and local tax collection data are from the U.S. Department of Commerce’s Census Bureau. Due to data constraints at the local level, the authors have made various estimates for years prior to 1958. The data have been adjusted into calendar years. The personal income data are from the U.S. Department of Commerce’s Bureau of Economic Analysis.

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How to Solve Oklahoma’s College Affordability Problem

By Dan Lips

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ow much should a college education cost?

According to the College Board, the average cost of earning a degree at a private, four-year university is now more than $100,000. If tuition prices continue to rise as quickly as they did during the past decade, a college degree will cost more than $200,000 by the time today’s third-graders are applying. That price tag is enough to cause most parents to break into a sweat.

Is a college degree really worth this cost?

Some bright minds think Americans are paying way too much. In fact, Bill Gates— one of the country’s most famous college dropouts—thinks the cost should be closer to zero. He told an audience last summer: “Five years from now, on the web, for free you’ll be able to find the best lectures in the world. It will be better than any single university. ” One could argue that the bright future Gates described is already here. The Massachusetts Institute of Technology has already put virtually all of its instructional materials, including lectures, online and made it available for free. Other schools, including many elite universities, are following suit. For example, using iTunes University, you can already download free lectures from Stanford, Yale, and dozens of other colleges.

The trend of a free and open higher education system will revolutionize higher education, and fundamentally change the way the world learns. As Gates argues, someday soon, anyone with Internet access— anywhere in the world—will be able to learn from the best professors and teachers.

Of course, access to instruction isn’t the only, or even primary, reason why most American students go to college. A big part of what today’s students are purchasing for that $100,000 is the degree itself—the credential that signals to employers and society in general that one is able to learn and can survive four years of classes and exams.

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But alternative credentialing systems, like AP tests and CLEP exams, are already in place. And the realization of Bill Gates’s vision of free online higher education will surely be followed by new credentialing systems that allow people who learn online to prove their accomplishments and signal their value to employers.

Professor Vance H. Fried of Oklahoma State University addresses the opportunity for entrepreneurial solutions to the college affordability problem in his new book Better/Cheaper College: An Entrepreneur’s Guide to Rescuing the Undergraduate Education Industry. Fried argues that innovative business models have the opportunity to revolutionize the college sector by offering lower-costs models. He contends that entrepreneurs could create a college model that costs less than $8,000, and perhaps even be tuition-free by harnessing government and philanthropic support.

Oklahoma’s forward-thinking elected officials now have the opportunity to expedite the arrival of the free college era and—in the process—solve a major problem for American families while providing big relief for taxpayers and federal and state budgets.

For too long, efforts to solve the college access and affordability problem have focused on increasing subsidies—grants, loans, and scholarships—for students to attend college. Increased student aid subsidies have contributed to today’s high tuition prices. The College Board reports that total federal support for all forms of college student aid programs was $146 billion in 2010—an increase of 136 percent over just a decade.

Instead of continuing this failed approach—an approach we simply can no longer afford—elected officials should focus on dramatically lowering the costs associated with earning a college education. For example, Governor Rick Perry recently called on the Texas higher education system to develop a new program through which students can earn a college

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degree for only $10,000. Presumably, this initiative will take advantage of the exciting efficiencies that are happening thanks to online learning.

Leaders in Washington and in state capitals should follow Governor Perry’s lead. Governors and state legislatures should require state-funded universities to follow schools like MIT—putting lectures and course content online for free. State higher education systems should create new credentialing systems to allow people who learn online to demonstrate their mastery and work towards a degree.

Congress and the Obama administration have a responsibility to taxpayers to support reforms that will lower the $150 billion annual burden of student aid programs. For example, Congress could require a

college that receives a certain level of direct federal subsidies to place a percentage of its instructional content online for free. This initiative would follow the tradition of the Library of Congress—creating a national library of college lectures that all citizens can use. President Obama could use his bully pulpit to challenge universities across the country to do their part to solve a critical national problem.

Very few of our country’s big problems have simple and inexpensive solutions. We can’t afford to pass this one up.

Dan Lips (A.B., Princeton University) is a senior fellow at the Goldwater Institute and the author of a forthcoming OCPA report on digital learning.

Pensions for Pols

By Patrick B. McGuigan n recent weeks, a CapitolBeatOK investigation has focused on the state government retirement incomes of a group of former elected officials (in both statewide and legislative positions). The retirement benefit for each person in this group is well beyond the annual income of typical Oklahomans.

Analysis of these retirement benefits included years of service, final employer, personal contribution toward retirement, and annual benefit amount.

Of the former state elected officials included in CapitolBeatOK’s analysis, former Auditor and Inspector Clifton Scott has the largest annual pension. Scott’s 2010 benefit amount was $157,488.

Scott was 73 years old last year. He retired from the auditor’s office in 2003 at the age of 65, having contributed $106,989 toward his retirement benefits during a 45-year career. Scott is one of a handful of officials who have, since retirement, secured other employment in state government. Until last year, he was administrator of the School Lands office, a post he assumed after leaving the auditor’s office.

Former state Sen. Gene Stipe drew a state retirement income of $94,602 in 2010, when he was 84 years old. He retired from the Senate in 2003 at the age

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of 77. Stipe’s contribution toward his benefits was $72,370 in the 31 years counted toward his benefits.

Former Sen. Gilmer Capps’ 2010 benefit was $76,613. He contributed $83,511 toward his benefits in 36 years. Capps, who was 79 last year, retired from the Senate in 2006 at the age of 75.

Former state Senate President Pro Tem Cal Hobson’s 2010 benefit was $77,327. During a 33-year career, Hobson paid $79,938 into his benefits account.

He retired from the Senate in 2006 at the age of 62, and was 66 years old in 2010.

However, like Scott (who is now fully retired), Hobson went on to other state employment. Until recently he worked for the Higher Education system, and last year earned $146,921 as an assistant administrator at the University of Oklahoma in Norman.

Another former state senator in the upper ranks of state retirement income is Herb Rozell, whose 2010 pension income was $71,644. Rozell paid in $77,228 in 32 years. Rozell left the Senate in 2004, at the age of 73.

Patrick McGuigan (M.A. in history, Oklahoma State University) is editor of CapitolBeatOK.com, where a longer version of this article appears.

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Lawsuit Reform in Oklahoma: Where We’ve Been, Where We’re Going

By Patrick B. McGuigan

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income taxes when determining a proper overnor Mary Fallin signed three lawsuit compensation award.” reform bills into law on April 5, one of the most Visible and deserved roles at the ceremony, significant milestones since her November 2010 besides the governor herself, went to fellow election as chief executive. The following layman’s Republican leaders: House Speaker Kris Steele, state summary of the legislation was provided by Fallin’s Rep. Dan Sullivan, Senate President Pro Tem Brian staff after the bill signing: Bingman, and Sen. Anthony Sykes. Also included “House Bill 2128 places a $350,000 hard cap on nonwere Fred Morgan of the State Chamber, officials with economic damages. Caps on non-economic the Oklahoma State Medical Association (OSMA), damages have been proven to help create jobs and and others who had worked to overcome a decade’s lower medical liability insurance premiums in other opposition from the powerful Oklahoma Bar states. A 2008 study by the Perryman Group reports Association, the state’s trial that after implementing nonlawyers, and leading law firms. economic damage caps, the state Will the Empire Two gentlemen were missing of Texas created 223,700 jobs, strike back? from places of honor in front of the increased annual consumer and room and before the cameras. The business spending by $55.3 billion, first was Andrew Spiropoulos, a law professor at and grew state revenues by $1.4 billion. The study also Oklahoma City University who also serves as the reported that medical liability insurance premiums Milton Friedman Distinguished Fellow at OCPA. decreased by 21.3 percent and the number of lawsuits The second missing face was there, but in the back filed against hospitals decreased by 70 percent. Thirty of the room by himself. Dr. Eli Reshef had a look of states have now placed similar hard caps on noneconomic damages, not including Oklahoma. H.B. 2128 will not impact economic damages, such as lost wages, medical expenses, and future loss of expected wages. The bill also includes an exception to the cap in cases of malicious conduct, gross negligence, and reckless disregard.

“Senate Bill 862 eliminates joint-and-several liability, sometimes known as the “deep pocket” rule, where each and every defendant in a tort lawsuit is liable for the entire amount of a plaintiff’s damage regardless of their degree of fault. S.B. 862 eliminates the “deep pocket” consideration, ensuring that plaintiffs seek defendants who are most at fault rather than defendants with the most financial assets.

“Senate Bill 865 requires that juries be instructed in civil cases that no part of an award for damages for personal injury or wrongful death is subject to federal or state income tax; and the jury should not consider

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contentment on his face. As the event ended, I walked over and said simply, “This happened because of you.” After hours of interviews conducted with him over a decade of reporting and reflecting on lawsuit reform, the rest could remain unspoken. In that wonderful accent of his, the veteran of combat in the Israeli Defense Force smiled and said, “I was one of many. We worked hard, and this is a good result.”

For decades, other than poor educational attainment, the most significant impediment to economic progress in Oklahoma was the state’s legal culture. Still, only in the modern era have political will and clout been sufficient to force a real debate and, ultimately, reforms.

Former Gov. Frank Keating wanted to change our jobs-smothering legal culture during his time in office, from 1995 to 2003, but didn’t have the legislative muscle to get there.

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Early in Brad Henry’s two terms as governor, OCPA formed a task force on civil justice reform, focused on “the jobs-killing power of civil litigation.” Gov. Henry later responded with a “medical liability task force” that saw no need for a cap on non-economic damages and no need for any limits on contingency fees and joint-and-several liability.

But good ideas are good ideas, and you can’t keep good people down forever. Then-Sen. Scott Pruitt pressed new legal protections for public school educators, but fell one vote short of getting a majority in the upper chamber. Seeds were planted in that and other battles.

Things stalled, until Republicans got an unanticipated break. The Lone Star State passed meaningful tort reform. In reaction, in an incomprehensible move, state Sen. Stratton Taylor wrote a prospecting letter to trial lawyers inviting them to come to the greener litigious pastures of Oklahoma.

The Wall Street Journal Dr. Reshef jumped on the issue with a house editorial. The State Chamber said the Claremore counselor had “painted a bulls-eye on the back of every business in Oklahoma.” The OSMA laid out evidence of 60-82 percent premium hikes for physicians who had never been sued. Dr. Reshef and others spoke about the paralyzing effects of “defensive medicine.”

In 2004, Brad Henry said he supported tort reform, and a modest reform measure passed. However, the OSMA made a separate peace with trial lawyers, declaring a “moratorium” on further reform.

That’s when the story took a turn. Dr. Reshef, otherwise moderate to liberal in his politics, broke ranks with the OSMA to form a group I dubbed informally “Doctor Democrats.” They were, as an OCPA sketch put it soon after, “mad as hell, and determined not to take it anymore.”

Thus was born a broad and powerful coalition, of

PERSPECTIVE • MAY 2011

the sort that brings reform in the midst of chaos. The battle continued, with Senate Minority Leader Glenn Coffee pushing reform. Republicans forged a firstever tie in the upper chamber in 2006 (having taken the state House in 2004). “Doctor Democrats” (and Republicans) were, on this, crucial allies to conservatives.

Gov. Henry made sympathetic noises on lawsuit reform, saying he wanted a “Texas-plus” reform. In 2007 (after one Democrat joined a unified Republican Senate caucus), the Legislature passed a bill that contained 18 of 28 reforms he had described as crucial. In the end, Attorney General Drew Edmondson denounced the bill, Gov. Henry withdrew from the courtship with tort reformers, and ultimately vetoed the measure.

Two years later, however, after Republicans took full control of the Senate, a better-than-nothing set of reforms passed, and Henry rediscovered the merits of legal reform. That 2009 bill was not Prof. Spiropoulos nirvana, but it was progress.

Disingenuously, at least in many cases, the bar association and others declared the war over tort reform over, and that it was time to move on to other things.

As John Wayne might put it, “Not hardly.” Back in 2008, an OCPA analysis had observed that for years— even after the intellectual case for reform had become utterly persuasive even to beneficiaries of the status quo—”the pure political power of big-time lawyers” kept needed reform from advancing.

The Republican tsunami of 2010 ensured that something would happen, and it did. Years of labor set the state for this year’s significant legislative breakthroughs, and last month’s rite of passage.

Because of its progress on lawsuit reform, Oklahoma has moved from what the American Tort Reform Association called a “judicial hellhole” toward what the Pacific Research Institute now characterizes

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as a system that is “salvageable.” And with the new 2011 laws in place, it would be shocking if that designation is not improved, yet again, to something along these lines: “Oklahoma is on the right road.”

In our brief exchange last month Dr. Reshef repeated what he had told me last winter: “This journey is not over.” Based on the data, Oklahoma has remained mired in the bottom one-third of all states when it comes to actual litigation costs and results.

The new law will affect all of that, but will it be enough? The future seems bright, but letting the sunshine in will require that the law actually go into effect and have a year or two to effect legal outcomes and economic decisions.

Here’s the rub: the culture of the Oklahoma judiciary and the bar associations. Right now, they are steaming at this massive invasion of their turf, even if the law doesn’t go into effect until later this year.

If the Empire strikes back, here’s an outline of the cast of characters on the dark side of the Force.

Defenders of the Stratton Taylor school of legal analysis have lost, politically, but that does not mean they will be without resources if (when?) they try to turn back the clock. They have lots of money, and lots to lose as the new laws go into effect.

Having lost the battle over “Texas-plus” reform, powerful lawyers may organize efforts to rub out the new law through litigation. If they make that move they will, when possible, reward friends and punish enemies.

They may have some odd friends. In a curious twist, a minority of legislative Republicans opposed lawsuit reform this year. It was one of a few issues where a group of self-professed conservatives tried to prevent passage of the conservative agenda. However misguided, this minority could impact the upcoming legal debate.

I have long defended judges and their role as “referees” in legal disputes. It gives this writer no joy to report that, other than the bar associations, the trial lawyer groups, and the immediate past state attorney general, the greatest impediment to lawsuit reform in Oklahoma has been the state Supreme Court.

The Court’s boldest move came in 2004, when they

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struck down a modest reform bill. The majority opinion derided what they deemed “unanticipated” results of laws “similar to Oklahoma’s scheme.” Scheme? In the same judicial cycle, the justices struck down a 2005 workers’ compensation reform bill, saying limits on medical forum shopping and on the number of doctors involved were “constitutionally infirm and must be stricken.”

Legal interpretation is the function of the judiciary.

Protection of market share for trial lawyers is not.

Prof. Spiropoulos, in a recent commentary for The Journal Record in Oklahoma City, said some pronouncements from our state’s High Court “read like the court cut and pasted the position papers of the trial lawyer interest groups.”

Dr. Spiropoulos was the Isaiah of lawsuit reform, prophetically pressing for laws strong enough to actually affect legal culture. Like Dr. Reshef, he refused to characterize earlier efforts as the end of debate. They were both right.

In his commentary, Spiropoulos predicted that if our state justices strike down these lawsuit reforms, “the days of operating in the dark will be over. And if that happens, we’ll know just what to do.”

Was that a threat? Well, no, it was a description. The Right has learned to mimic the Left in judicial selection and retention matters where direct political action is permissible.

Having thrown down the gauntlet of interpretation, the best way to avoid a political war over the judicial function is for the state Supreme Court to allow elected representatives to make laws within the state and American constitutional framework. The justices do not have to like it, but they do have to recognize the new laws as the democratic branches of government resetting the clock.

It’s time to spring forward, not fall back. If the justices “show out,” let the slap-down begin.

Patrick McGuigan (M.A. in history, Oklahoma State University) is editor of CapitolBeatOK.com. He spent 10 years at the Free Congress Foundation, a conservative think tank in Washington, D.C., and is the author of (among other books) Ninth Justice: The Fight for Bork.

PERSPECTIVE • MAY 2011

Once Upon a Time . . .

By Brett A. Magbee

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here once was a little think tank with big ideas for improving the economy of its state. It operated with a borrowed desk, a phone, and a single employee. In time, others joined the effort and their big ideas started changing things for the better.

That is the beginning of a story that has been repeated in almost every state in the union.

Think tanks are little laboratories of free-market thought. They are on the frontlines, advancing principled, limited-government policy ideas throughout America. Without such groups, big-government proponents would run roughshod over state capitals throughout the country.

By placing principles over politics, think tank folks often find themselves at odds with the political power brokers who place their own self-interests above any other consideration. The price think tanks pay for taking principled stands is not always recognized, yet their actions are very consequential.

Whether it is advancing ideas that reduce the tax

OCPA president Michael Carnuccio welcomes State Policy Network (SPN) members to OCPA headquarters.

Daniel Erspamer, SPN’s vice president for development Lynn Harsh, SPN’s vice president for strategy

PERSPECTIVE • MAY 2011

burden on families, the regulations on business, or the restrictions on education, or whether it is battling other onerous government intrusions, state-based, free-market think tanks are always thinking about liberty—how to keep it and maintain it.

Recently, 40 such defenders of individual liberty from around the nation met for a two-day conference hosted by OCPA. It was great having so many freemarket heroes meet in Oklahoma and visit our facility.

Better yet was the opportunity it afforded us to gain insight into the commonality of challenges such nonprofit think tanks face.

Every one of them will tell you that funding is crucial.

It’s regular, committed citizens like you who keep the work going by supporting such organizations. At OCPA, it’s no different. Will you help us develop big ideas to improve our economy in Oklahoma by supporting us today?

If so, the story of the work of one little think tank is only just beginning.

SPN members share a lunch together as they prepare to fly home after the conference.

Michael Carnuccio, OCPA’s president Margaret Ann Morris, OCPA’s vice president for development

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Perspective is published monthly by the Oklahoma Council of Public Affairs, Inc. No substantial part of the activities of OCPA includes attempting to influence legislation, and OCPA does not participate in, or intervene in (including the publishing or distributing of statements), any political campaign on behalf of (or in opposition to) any candidate for public office.

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“A striking example of [Oklahoma’s] preference for access over excellence is our system of higher education. We have 26 state colleges and universities, far too many for a state with our moderate population and limited wealth.”

Law professor Andrew Spiropoulos, the Milton Friedman Distinguished Fellow at OCPA

“Both are dangerous because each has her following of semiliterate, unthinking zealots.”

Retired Oklahoma educator Edwin Vineyard, referring to Michele Bachmann and Sarah Palin

“But this is Oklahoma—we embarrass ourselves all the time.”

State Rep. Al McAffrey, an assistant Democratic floor leader, quoted April 21 in The New York Times

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“If Obamacare is so great, why are so many trying to get out from under it? And, more specifically, why are so many Democratic groups trying to get out from under it?”

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“We’re suing the Obama administration. Taking money is like backing the president. We can set up whatever we want anyway.”

U.S. Sen. Tom Coburn, backing Gov. Mary Fallin’s decision to refuse a $54 million Obamacare grant

Michael Barone

“We are deep in banana-republic territory here. The head of state forces an eccentric law onto his subjects and then lets his closest supporters get out of it so that they alone may continue to prosper.”

Abe Greenwald, commenting on the 1,168 waivers issued so far by the Obama administration

“… undergraduate students of non-African American origin …”

Students eligible for “Diversity Scholarships” at Langston University, a historically black college

“I’m urging passage of legislation enacting tuition tax credits in Oklahoma to offer parents more and better choices.”

State Superintendent Janet Barresi

“If ... members of the Oklahoma Legislature really wanted to help OETA with its mission, they should find some way to increase funding for public broadcasting in Oklahoma and then get the hell out of the way.”

Journal Record Capitol reporter M. Scott Carter, in an April 8 column