Graph of the Day: Tax cut will provide little benefit to most Oklahomans

The average Oklahoman would get just $29 from Governor Mary Fallin’s proposed income tax cut, while one-quarter of the total benefit would go to the wealthiest 1 percent of households, according to a new analysis prepared by the Institute for Taxation and Economic Policy (ITEP).

The Governor’s plan would cut the top income tax rate from 5.25 to 5.0 percent in 2015. Of all Oklahoma households, 41 percent would get zero benefit because none of their income is taxed at the top rate. As can be seen in the graph, the bottom 80 percent of Oklahomans – those with annual incomes below $97,000 – would get a tax cut of under $100. By contrast, those in the top 1 percent of earners, with average incomes of more than $1.2 million, would enjoy a cut on average of $2,009.

average-tax-cut-2014 (2)

The tax cut would result in a total loss of $135 million in state income tax collections, according to ITEP. Of the total cut, 71 percent would go to the top fifth of households, compared to just 9 percent for the bottom 60 percent of households.

In a poll done last year, 60 percent of Oklahomans expressed opposition to a tax cut along the lines of the one being proposed.

In a recent editorial, the Oklahoman took OK Policy to task for describing the distributional breakdown of the proposed tax cut, stating:

It’s also true that the more money you earn, the more money you save when the tax rate is cut. That’s just basic math. This doesn’t mean the rich are getting a bigger tax cut than the middle class. The rate reduction would be the same for both.

The fact is, however, that of all possible approaches to tax cuts, cutting the top rate – as Oklahoma has already done repeatedly in recent years – provides the most benefit to the fewest Oklahomans and the least benefits to most Oklahomans. If the goal were to pursue tax cuts that provided more broad-based and equitable benefits, there are many other options, including stretching out the income tax brackets so as to tax less income at the top rate (which the Oklahoman says it supports in principle); increasing the personal exemption, which has been frozen at $1,000 per person for several decades; or cutting the sales tax.

With the state facing large budget shortfalls  and urgent needs, this is the wrong time for any tax cut. But one that would make an already regressive tax system even more so and put schoolchildren, public safety officers, people in need of mental health services, and others at risk, while providing little or no benefit to most Oklahomans, is indefensible.

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Former Executive Director David Blatt joined OK Policy in 2008 and served as its Executive Director from 2010 to 2019. He previously served as Director of Public Policy for Community Action Project of Tulsa County and as a budget analyst for the Oklahoma State Senate. He has a Ph.D. in political science from Cornell University and a B.A. from the University of Alberta. David has been selected as Political Scientist of the Year by the Oklahoma Political Science Association, Local Social Justice Champion by the Dan Allen Center for Social Justice, and Public Citizen of the Year by the National Association of Social Workers.

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