Lawmakers voted down a corporate income tax cut this spring. Leadership should leave it out of the budget.

NOTE: Policy Fellow Josie Phillips contributed to this analysis

Cutting the corporate income tax — which was proposed in the failed House Bill 4358 — overwhelmingly benefits wealthy and out-of-state corporations over everyday Oklahomans and locally owned businesses. The Senate Finance committee rejected the bill 6-3 in April, so legislative leadership should keep the provisions of this bill off the table as they complete their closed-door negotiations for next year’s state budget. 

In the most recently completed fiscal year (which ended on June 30, 2021), the corporate income tax brought the state $601 million in revenue, or nearly twice the annual budget for the entire Department of Mental Health & Substance Abuse Services. Last year, lawmakers reduced the corporate income tax from 6 percent to 4 percent, which now means Oklahoma is tied for the nation’s second-lowest corporate income tax rate. ¹ When that corporate income tax cut becomes fully effective in 2023, it is expected to cost the state $110 million annually in lost revenue. 

Despite claims that last year’s corporate income tax would lead to economic growth, it’s too soon to fully evaluate the impacts from last year’s cuts, therefore any further cuts this session would be premature. Adding even more corporate income tax cuts would not help the state’s economy. In fact, it could drive businesses away as revenue cuts will continue to constrict the state’s ability to provide basic and vital public services.

A corporate income tax cut would overwhelmingly benefit out-of-state companies  

Four out of every five dollars (81 percent of the benefit) of the corporate income tax cuts originally proposed in HB 4358 would go to out-of-state companies, according to the Institute on Taxation and Economic Policy. Any corporate income tax cut would have similar impacts. Most Oklahoma-based businesses aren’t subject to the corporate income tax because of how they are organized. The majority of Oklahoma’s local businesses are limited liability companies, sole proprietorships, or subchapter S corporations, all of which do not pay the state’s corporate income tax. (Nationwide, sole proprietorships and S corporations make up 86.2 percent of all businesses.) Rather, these Oklahoma companies pay taxes on their business profits in their individual income tax, at a top rate of 4.75 percent. Wealthy corporations — nearly all of which are headquartered outside of Oklahoma — pay tax through the corporate income tax and would therefore be the only businesses to benefit from a corporate tax cut. 

Cutting the corporate income tax prioritizes wealthy out-of-state businesses over everyday Oklahomans 

In exchange for financing a tax cut for the out-of-state and foreign corporations and stockholders, low- and middle-class Oklahomans will undoubtedly see further erosion of public services in Oklahoma. (For example, since 2009, the State Department of Health has seen a 21 percent cut in its annual budget, and the Office of Disability Concerns has seen a 26 percent cut – both unadjusted for inflation.) As inflation increases and our state population grows, lawmakers have not allowed Oklahoma’s state budget to keep up with evolving needs. 

When 2021’s corporate income tax cut takes full effect in 2023, the annual revenue from this source will be about half a billion dollars.² HB 4358 proposed to fully phase out the corporate income tax, which would eliminate these funds from being available for public use. According to OK Policy analysis, instead of fully phasing out the corporate income tax, state leaders could use that revenue to: 

• Give every teacher a raise of $11,500,
• Hire 20,000 new teachers,
• Repave 1,000 miles of state highway, 
• Build 14,600 miles of rural broadband, or 
• Replace 1500 structurally deficient bridges 

Alternatively, if state leaders cut the the corporate income tax in half, they would be missing the opportunity to:

• Give every teacher a raise of $5,750
• Hire 10,000 new teachers
• Repave 500 miles of state highway 
• Build 7,300 miles of rural broadband, or 
• Replace 750 structurally deficient bridges 

Finally, cutting the corporate income tax will do nothing to ease the burden of inflation on low- and middle-class families, despite legislative claims. In fact, broad-based tax cuts can actually make inflation worse. Further, there is no guarantee that any corporate tax savings would be passed down to consumers to ease inflation’s impacts, as pointed out by Sen. Brent Howard, R Altus, in his debate against the full phase-out of the corporate income tax. True inflation relief would take the form of targeted tax relief to low- and middle-class families, who have been hit the hardest by rising prices.  

Corporate tax cuts won’t attract businesses  

Cutting the corporate income tax may be counterproductive in economic development efforts and actually keep new businesses from coming to Oklahoma. The state’s business leaders have overwhelmingly identified workforce development — not corporate tax reform — as their top legislative priority. Investing in workforce development requires sufficient state revenue, which depends on stable and robust revenue sources. Businesses require high quality public education to train workers and reliable infrastructure to get them to work. Thus, tax cuts reduce revenue to effectively fund these types of public services, and in turn this could weaken the state’s long-term economic growth. In opting for more corporate tax cuts, Oklahoma lawmakers would be ignoring business leaders’ demands for a skilled workforce, robust public services, and inclusive environments — all of which would make Oklahoma a destination of choice for businesses and families. 

Oklahomans need investment, not business giveaways 

Further cuts to the corporate income tax are unnecessary and harmful to low- and middle-class Oklahomans. Corporate income tax cuts overwhelmingly benefit large, out-of-state businesses. A cut likely won’t attract new businesses or increase employment – and it may even drive them away.

Earlier this session, lawmakers rejected a bill that would have further cut the corporate income tax. With only 10 business days left in this legislation session and a budget proposal not yet made public, the handful of legislative leaders who are meeting behind closed doors to create next year’s proposed budget should respect the legislative process and avoid the temptation to resurrect failed legislation as a bargaining chip during last-minute budget negotiations. 

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CALL TO ACTION: Contact your legislators to ask them to reject further corporate income tax cuts or any across-the-board cuts that favor the wealthy over everyday Oklahoma families. Urge your lawmakers to invest in robust public services and workforce development.

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¹ Forty-four states levy a corporate income tax. Four others impose a tax on gross receipts. Only two states – South Dakota and Wyoming – levy neither type of tax.

² In Fiscal Year 2021 (which ended June 30, 2021), the corporate income tax generated $601 million in revenue. The estimated impact of the 2021 Legislature’s corporate income tax cut is $110 million when fully phased in. While these numbers fluctuate year to year, that leaves an estimated of $491 million to work with.