Action Items for Oklahoma: Tax Reform
This is the first of a seven part series by Oklahoma Policy Institute to propose public policy action items for the state of Oklahoma. These recommendations are aimed at improving the shared prosperity of all Oklahomans while maintaining a fiscally responsible state budget. Future installments will focus on criminal justice, education, energy, financial security, health care, and jobs.
To prosper in the 21st century, Oklahoma needs a well-educated workforce, functioning infrastructure, healthy families, and secure communities. Reaching these goals requires a tax system capable of generating enough revenue to fund the core public services on which our prosperity depends.
Our current state tax system is poorly equipped for the task. It has become increasingly outdated, inefficient and unfair. Oklahoma’s tax code is riddled with loopholes that reduce revenue collections and place a greater share of the tax load on a narrower base of taxpayers.
As we look further ahead, we see that growing funding obligations and ever-larger holes in our tax system are creating a fiscal gap, or structural budget deficit, between revenue collections and rising costs. Inadequate revenue is already straining the public institutions that educate our children, protect our streets, and take care of our family members and neighbors in need. In the not-distant future, the aging of the Baby Boom generation will drive up the cost of health care, social services, and corrections. The state faces price tags in the tens of billions to cover unfunded pension liabilities, repair crumbling roads, bridges and public buildings, and protect our drinking water and waste water systems.
For too long, Oklahoma has not had a sensible debate on tax policy. In the mid-2000s, the state approved deep, permanent tax cuts that were only fully phased in after the economy faltered. Recent proposals have focused narrowly on cutting the top personal income rate, with wildly optimistic promises that this will lead to massive economic growth.
There is another way. Through key reforms to Oklahoma’s tax code, we can ensure that we will have adequate revenues to perform the essential functions of state government while making the tax code fairer for Oklahoma families and businesses.
- Modernize the income tax by eliminating inefficient tax credits, limiting itemized deductions, adopting combined corporate reporting, and taxing less income at the top rate.
- Modernize the sales tax by taxing selected services, eliminating sales tax exemptions, collecting tax on online sales and eliminating the sales tax on groceries.
- Strengthen the gross production tax by eliminating unnecessary exemptions.
- Make sure that future tax and spending proposals are affordable and sustainable by adopting PAY-GO requirements.