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Policy Challenges We Face

Oklahoma governments have achieved a great deal in the last few years. Taxes and other revenues have helped us invest in education for young people, health care for those who are most in need, safe streets and neighborhoods, and sufficient public infrastructure to support a growing economy. We have made progress, but we still have much to do. This section addresses two important long-range fiscal issues: our inequitable tax system and the prospect that the gap between desired level of public services and what we can generate in revenues–“the fiscal gap”–will grow.

This section reaches several major conclusions.

  • Oklahoma state and local government faces a long-term fiscal gap in which ongoing revenues will not be enough to pay ongoing spending commitments.
  • The fiscal gap results from rapidly increasing health care costs, an aging population, commitments for employee and retiree benefits, spending that does not demand results or consider long-term effects, a tax system that does not keep up with the economy,and tax cuts and exemptions.
  • The fiscal gap can be controlled by better forecasting and reporting long-term commitments, paying for new tax cuts and services through other budget reductions, and funding new mandates on state and local governments. The state will require new revenues and reductions in service to restore and maintain long-term fiscal balance.
  • Oklahoma’s tax system is inequitable. The lowest income earners pay 12 percent of their income in state and local taxes while the highest pay 8 percent. This “regressivity” results from relying on sales and excise taxes and on gambling as a major source of government revenue.
  • Oklahoma can make its tax system more equitable by increasing the income tax credit for sales taxes on groceries, and making the income tax more progressive.

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