NRPLUS MEMBER ARTICLE {T} he personal-income tax is a penalty on work, investment, and families. As the saying goes, if you want less of something, tax it more. In Oklahoma, our tax code has penalized work and investment for more than a century. It’s time to change that dynamic.
In Oklahoma, there are no good reasons to oppose cutting the penalty on work, investment, and families — the state-income tax — today. Our legislators should act quickly to provide real tax relief to Oklahomans and eliminate, immediately or incrementally, the personal-income tax.
Opponents will object that Oklahoma is already doing better than most states. That’s partially true. We have low unemployment and, in recent years, have even been among top 10 destination states for people relocating from other (often higher) tax states.
But even though Oklahoma has benefitted from net-positive domestic migration, IRS data still show that many higher-income earners, who are often job creators, continue to leave our state — and they are often going to places like Florida and Texas, both of which have no personal-income tax.
It’s good that Oklahoma is attracting some families who are critical for a productive workforce. But we also need to retain and attract more job creators, targeting those who make the decisions about business location and who help create new jobs.
Critics often claim a state cannot “afford” to cut taxes. That isn’t true in Oklahoma. Thanks to Governor Kevin Stitt and legislative leaders who are embracing responsible budget practices, our state now has roughly $5 billion in savings. Those savings were achieved by simply spending less than what the state received. (Imagine that.)
And Oklahoma could have additional surplus when lawmakers reconvene in early 2024, based on current trends.
Oklahoma’s top personal-income tax rate is currently 4.75 percent. The state can easily afford to cut that another quarter-point to 4.5 percent.
Also, the True North position is that lawmakers should eliminate the personal-income tax immediately and replace the revenues foregone with a sales tax on services, which Oklahoma does not currently have, shifting to a predominantly consumption tax-funded government like Florida and Tennessee, while cutting wasteful government to replace revenue.
An alternative approach would be for lawmakers to put the state on the path to full income-tax elimination over time. This is the approach being discussed and pursued in states like North Carolina, Mississippi, and Arizona.
The method used to build up a state’s cash reserves can also be used as a model for eventually eliminating the personal-income tax: Keep spending in check, and use the revenue generated by the economic growth created by tax cuts to offset the cost of future reductions in the tax rate. This comes with the added advantage of curtailing the ability of lawmakers to engage in wasteful spending that is not only undesirable in itself, but also can lead to higher recurring state-budget obligations.
A 2004 study by economist Stephen Moore found that, from 1993 to 2003, the state of Oklahoma collected more than $3.8 billion in excess of the amount required to maintain 1993 levels of spending, even after adjusting spending for population growth and inflation. Even if this growth rate is too much, especially when it exceeds historical GSP (Gross State Product) growth, it is an important measure of the economy. That type of unrestrained spending growth — not tax cuts — ultimately produces budget shortfalls in down years.
Furthermore, it’s possible to lower the personal-income tax, maintain budgetary discipline, and boost spending in ways that enjoy broad public support. Since 2005, Oklahoma’s top personal-income tax rate has been cut from 7 percent to the current 4.75 percent. Over that period, overall tax collections and Oklahoma state spending on K-12 education has boomed.
Just from 2005, where legislative appropriations to public K-12 were $2 billion (roughly $3.1 billion in 2023 dollars), to the current 2024 state budget year, where legislative appropriations were $3.9 billion, an additional $1.9 billion has been appropriated by lawmakers to K-12 education.
Finally, tax cuts are not just good policy. They’re also good politics.
According to a recent survey, conducted by WPA Intelligence (WPAi) on behalf of the Oklahoma Council of Public Affairs (OCPA) and Americans for Prosperity (AFP), 65 percent of Oklahoma voters support cutting the state income tax, while only 22 percent oppose income-tax cuts. The survey found that 67 percent of voters support elimination of Oklahoma’s income tax.
Governor Stitt, house speaker Charles McCall, Oklahoma senator Julie Daniels, and other legislators have made tax cuts a priority. Some lawmakers have been less effusive, but given the on-the-ground reality, there’s reason to think they will come around.
Oklahoma families have endured an effective pay cut due to the inflation over the last few years. Those families need more control and financial freedom. Our state economy can use the jolt. And there’s never been a better time to cut taxes in Oklahoma than today.
The list of fastest-growing state economies is dominated by states that have no personal-income tax. If our state lawmakers act wisely, Oklahoma could soon join that list.