Inflation: It’s time for Oklahoma’s legislature to help those who need it most
Inflation has returned to the top of American concerns and is getting a lot of attention from officials. In Oklahoma, Governor Kevin Stitt called the legislature into special session to provide relief for families facing “skyrocketing costs.” The House of Representatives immediately passed a menu of tax breaks, most of which won’t arrive when needed and won’t make any difference to the Oklahomans most affected by rising prices. The Senate hasn’t taken any action, hoping to instead make a deep dive into comprehensive tax reform.
After reviewing what inflation is, what’s causing it right now, and who affects most, I’ll show how our leaders can provide meaningful relief to the very Oklahomans who need it most. We should expect them to do so without further delay.
We have too many buyers and not enough to sell
Inflation is what happens when demand for a product or service (how much we want to buy) is so much greater than the supply (how much is being sold) that sellers can raise prices and buyers are willing to pay them. Inflation can be spurred either by demand (we have money to spend and we’re ready to buy) or supply shocks (sellers can’t get as much of the product as we want, can’t get people to work in their stores, etc.). Most commentators blame both sides of the equation for our current price increases. If there’s a bigger culprit, it’s probably on the demand side. As concerns over Covid-19 fade, we have more money to spend (from government assistance, saving during lockdowns, and higher wages) and we are itching to spend, whether on cars, travel, or eating out. Covid did a number on the supply side, too. Factories shut down, shipping virtually stopped, and service industry workers were laid off or quit in disgust. All have been coming back, but slowly. The war in Ukraine has negated some of the gains though, by reducing the supply of oil and food.
Inflation, which we measure as the annual growth in the Consumer Price Index, is now the highest it's been in 40 years. The chart below (which excludes this year's higher inflation) inflation has been under control since the mid-1980s. In fact, until this year, it hasn't exceeded five percent since 1991. Nobody under 50 has experienced inflation at these levels, so it's not surprising many Oklahomans, Americans, and people all over the world, are surprised and worried by our current economy.
While nearly everyone is affected by inflation, not everyone is hurt and those who are hurt are not affected equally. The damage, is greatest for low-income households. They have less to spend, and they are spending a considerably higher share of their incomes on food, gas (for those who must drive), and rent, than the rest of us. That means they face higher inflation than middle- and upper-income households. They have fewer options for cutting back and they spend little on luxuries. In fact, those making under $40,000 are more than three times as likely to say price increases are creating a severe hardship than those making more than $40,000. So that's where governments must focus their efforts to relieve the pain.
Most of the options the legislature has considered won't help those who need it.
Many of the items suggested by the Governor and passed by the House can be dismissed as useless for those needing help. Cutting the individual income tax will help those with higher incomes the most. After all, it’s a progressive income tax, meaning the more you make, the higher a percentage you pay. Those with incomes under $40,000–the ones hardest hit by inflation–will see virtually no benefit from cutting the tax rate. That’s even more true of cutting the corporate income tax, which is largely paid by out of state stockholders and executives and nearly exclusively paid by those in the top five percent of incomes. Further, nobody would see any savings from these cuts until next spring when taxes are due.
Proposals to suspend or eliminate the sales tax on groceries have both merit and drawbacks. Unlike the income tax cuts, they could take effect within a month or two of passing. They’d also help the lowest income Oklahomans. However, they might not help as much as you think, since food purchased with Supplemental Nutrition Assistance Program (SNAP) benefits is already tax-free. Before passing even a temporary reduction, lawmakers should address how public services would be cut, since the sales tax is the second largest source of revenue for the state and the largest for cities. Taking the tax off groceries would cost the state over $300 million in revenue and would probably reduce city and county receipts by at least as much. That could hurt all of us, particularly those with low incomes, more than the benefit of the tax cut.
Now's the time for legislators to act
State policy makers should focus relief on those affected most by inflation. Legislators should consider and pass two of the remaining options as quickly as possible. One would raise the $40 per person income tax credit that’s designed to minimize the impact of taxing food on low-income households to $200 per person. The credit is available to single people making under $20,000 and families and seniors making under $50,000. They should also revive the $75 ($150 for married couples) one-time rebate they passed (but Stitt vetoed) in the 2022 legislative session. This time they can limit the rebate to those in the bottom half of the income scale and increase the amount.
Together this package would provide timely and meaningful relief to those whose lives are most affected by inflation, and Oklahomans should demand their elected leaders get back to the capitol and provide inflation relief to those who need it.