Small: The compounding effect of good policy

The compounding effect of good policy

By Jonathan Small

The combination of good government policies, over time, has a compounding effect that reaps growing benefit for a state. The same is true of bad government policies.

Oklahoma’s loss of major company headquarters in recent months is tied to the latter and shows why lawmakers must not retreat from undoing the harmful policy legacy of Oklahoma’s first 100 years.

When officials with Devon Energy and Coterra Energy announced the two companies are merging, they also announced the combined company will be headquartered in Houston, Texas, not Oklahoma City.

Shortly after, Expand Energy—formerly known as Chesapeake Energy—announced a similar headquarters relocation.

They didn’t make those moves because Houston has better weather. Instead, Texas offers a better policy climate over the long-term and all the results associated. Texas has no personal income tax, meaning it does not penalize work and investment, and never has. Texas also has laws that restrict frivolous lawsuits, restrain regulation and provide sustainable work comp environments, has better accountability of state agencies, and has had a less activist-oriented judicial system and greater accountability regarding policy issue ballot measures. 

Oklahoma has made great progress on those fronts, but Texas had much better policies in these and other areas decades ago. That head start matters. And Oklahoma still has an income tax, although it has been put on a gradual path to full repeal.

Based on Internation Revenue Service data, Oklahoma has lost significant numbers of residents and associated state income to no-income tax states through the years. From 1993 to 2022, Oklahoma lost $646 million in net income to Florida, $944 million to Texas and $70 million to Tennessee.

So long as capital is treated better in no-income-tax states like Texas and Florida, those states will continue to have an advantage over Oklahoma.

As an October 2022 report by the Stanford Institute for Economic Policy Research bluntly noted, “People tend to leave high-tax areas and move to areas where taxes are lower.” That report found 24 of the 25 highest-tax states had net out-migration in 2016, while 17 of the lowest-tax states had net in-migration.

Even so, some are arguing for a return to the failed policies of Oklahoma’s first nearly 100 years and advocate for policies that are resulting in populations and incomes fleeing states more oriented towards government and pro ever-increasing tax-and-regulatory barriers. 

Yet the loss of Devon and Expand shows the need for even greater urgency when eliminating the last vestiges of the left-wing policies whose cumulative effects continue to drag down Oklahoma’s growth.

If we only competed with blue states, Oklahoma would be in great shape. But we compete against all states. It’s not enough to be better than the nation’s worst. We need to be the best state in the nation for work and investment, period.

Jonathan Small serves as president of the Oklahoma Council of Public Affairs.