Governor Signs Laughlin's Legislation Setting Stage for Real World Cost Estimates of Tax Legislation

(State Capitol, Oklahoma City) – A bill recently signed by the governor could lead to changes in the way the Oklahoma Tax Commission estimates the budgetary impact of tax proposals.

Senate Bill 368, by Senate Republican Floor Leader Owen Laughlin, creates the Task Force on Dynamic Revenue Forecasting. The task force will study the use of dynamic revenue forecasting and develop recommendations for the Oklahoma Tax Commission regarding the use of such forecasting for analyzing proposed tax legislation

The new law also requires the Tax Commission to develop estimates and statements for tax legislation utilizing a dynamic revenue estimating model “as soon as practicable” after December 31, 2008, subject to the availability of funding.

Laughlin said dynamic revenue forecasting takes into consideration changes in economic activity as a result of proposed legislation, as well as corresponding revenue gains or losses due to factors such as taxpayer behavior, employment and business investment.

“The current static revenue forecasting models do not effectively measure the positive impact that tax cuts have on economic activity or the negative effect of tax increases,” stated Laughlin, R-Woodward. “Therefore, the current models tend to inflate estimates of the revenue that a tax increase might bring in, while overestimating the projected ‘cost’ of tax cuts,” he said.

“On the other hand, dynamic revenue forecasting reflects the real world impact of tax legislation, giving lawmakers better insight into the impact of changes to state tax policy,” Laughlin said.