Governor’s costs for his proposed income tax cut have quietly increased. Here’s why lawmakers should prioritize targeted tax credits to help working families.

Last month, when the governor initially announced a proposal to cut the state’s personal income tax by a half-percent, the Oklahoma Policy Institute raised the flag that these cuts would cost about $660 million in state revenue annually – nearly three times the $202 million cost the governor suggested.

When the governor’s staff publicly questioned our projections, we stood by our numbers, which were developed in conjunction with our partners at the Institute on Taxation and Economic Policy:

“We have high confidence in our revenue cost estimates that we shared yesterday. Those represent estimated revenue lost once a tax cut is fully enacted, or a full year’s worth of lost revenue. The governor’s office has typically shared more optimistic projections because that’s the nature of trying to sell something.”

Fast forward two weeks, and the governor on Friday took to his whiteboard to attempt to explain to the media how his plan works. During which time, he mentioned that his half-percent cut to the personal income tax would cost $240 million for a half year and $600 million for a full year.

You may have noticed that both of the figures he shared on Friday are higher than his initial pitch. This isn’t intended to be a gotcha moment, but we want to emphasize that when our elected officials talk about policy issues, facts and figures matter. Decisions need to be made using the best data available.

At $660 million, a 0.5-percent cut to Oklahoma’s personal income tax cut is about 5 percent of the appropriated state revenue for the current fiscal year (FY 2025). For relative size, this is more than the state allocated for the entire Department of Corrections this year ($544 million). Over 10 years, this cut adds up to nearly $7 billion.

This is part of a 10-year trend of Oklahoma lawmakers reducing state revenue by more than $2 billion each year annually through a wide variety of tax cuts.

When it comes to cutting revenue today, future lawmakers will be faced with two tough choices when additional state revenue is needed to address our state’s public problems:

• Raise new revenue, which is virtually impossible to do in Oklahoma because new tax revenue requires a 75 percent approval from both the House and Senate, or
• Cut shared public services, like education, public safety, transportation, health care, roads, and more.

During the governor’s media event on Friday, he also continued his claim that the tax cuts will be offset by growing the state’s population. (“We need more taxpayers, not more taxes.”) That misses the mark.

Simply put: As Oklahoma’s population grows, more people will need services. But if tax cuts reduce revenue and the budget stays the same, the money will have to cover the needs for more people. This means there will be less state funding available to meet essential needs for everyone. The math just doesn’t math.

However, one key element was missing from last week’s whiteboard presentation: what these proposed income tax cuts mean for everyday Oklahomans.

The Institute on Taxation and Economic Policy has estimated how much these proposed tax cuts would impact Oklahomans, by income level: 

A 0.5-percent cut to Oklahoma’s personal income tax would provide little relief to everyday Oklahomans who need it most

For everyday Oklahomans? There’s not much impact. About $15 a year for the lowest-earning Oklahomans, and about $180 a year for folks in the middle 20% of Oklahoma workers.

Meanwhile, the richest 1% of Oklahomans would see a tax break of about $5,860 annually — nearly 32 times larger than for most middle-class Oklahomans.

That’s the problem with across-the-board tax cut proposals like this: Most of the benefit goes to the wealthy, while everyday folks get pennies on the dollar.

This is one of the reasons that we are encouraging lawmakers to modernize existing tax credits — the Sales Tax Relief Credit, the Child Tax Credit, and the Earned Income Tax Credit — which are laser-focused on putting hundreds of dollars back in the pockets of everyday Oklahomans and their families.

For example, by increasing the value of the Sales Tax Relief Credit to $200 per person and expanding its eligibility requirements, Oklahoma lawmakers can deliver fiscal relief to nearly 900,000 Oklahoma households — that’s almost half of all tax filers in the state last year.

Expanding these credits is the smartest, most fiscally responsible choice for lawmakers, especially those who have expressed worry about how increasing costs are hitting working Oklahomans.

Unlike permanent tax cuts, which can drain the budget during economic downturns, tax credits can be adjusted over time. They provide targeted relief to those who need it most without compromising Oklahoma’s financial future.

Tax policy debates are often divisive. But, this is one issue on which all sides should agree. Modernizing the Sales Tax Relief Credit is a common-sense solution that helps families make ends meet while keeping the state financially stable.