Let’s not kid ourselves: Oklahoma can’t run without income tax revenue

Income tax is a necessary revenue source for Oklahoma’s fiscal health. Reducing or eliminating income taxes provides almost no relief for the segment of Oklahoma’s population who needs it most: low- and middle-class taxpayers. In fact, the elimination of income taxes would result in an overall tax hike for people in the lowest income tax bracket. Oklahomans have a hard-won reputation for being very caring and giving people. When disaster strikes, we are the first to show up to help. We are prepared when we are needed in emergencies. Should we not strive to be the same way with our state budget?

Fiscally responsible policy choices during the 2025 session can ensure our state is prepared for any financial difficulties while still being able to help working Oklahomans.

A graduated income tax makes our tax code fairer

Oklahoma’s state revenue is largely made up of four taxes: income tax (corporate and individual), sales tax, gross production tax, and motor vehicle tax. Of these, the individual income tax is unique because it is one of the few mechanisms offsetting the comparatively high tax rate our tax code places on low- and middle-income taxpayers. As the graph below shows, the individual income tax is the only state tax that increases in proportion to income. All the other taxes ask more from people who have the least when considered as a share of their household income.

When it comes to being able to serve its constituents, among the worst things Oklahoma lawmakers could do would be to cut or eliminate the income tax. Unfortunately, 22 income tax reduction bills have been introduced for the 2025 legislative session. For example, House Bill 1009 by Rep. Jay Steagall, R-Yukon, would completely eliminate the personal and corporate income tax by 2035. Sen. Dusty Deevers, R-Elgin, has filed a number of tax cut bills, including the immediate elimination of individual (Senate Bill 305) and corporate (SB 322) income taxes. The governor has pushed for income tax cuts — a half-percent cut to both the personal and corporate income tax rates — as the next step to his “path to zero” for state income taxes. The income tax rates proposed by the governor align with the rate cuts in Sen. Julie Daniels’ SB 227, which also proposes to make the Earned Income Tax Credit non-refundable and eliminate the Sales Tax Relief Credit both of which are utilized largely by lowest income earners.

A look at some of the 22 tax cut bills introduced for the 2025 legislative session thus far

However, across-the-board income tax cuts provide little to no benefit to everyday people. As we can see below, the vast majority of benefits from straight across-the-board tax cuts go to the wealthiest Oklahomans. Instead, legislators should focus on maintaining our income taxes and even enhancing the graduated rate of taxation to make the tax code more fair and fully benefit from periods of economic growth.

Income taxes are a crucial piece of our budget puzzle

Income tax revenue alone makes up more than 1 in 3 dollars of Oklahoma’s general revenue fund. It funds many aspects of our lives, including public safety, public schools, the teachers’ retirement fund, road and bridge construction and maintenance, public transportation, economic development, and much more.

One crucial public resource that income taxes fund is our state’s public roads and highways — as opposed to privately operated roads by the Turnpike Authority. The state’s ROADS Fund provides funds for public road construction and maintenance. Last year, income tax revenue accounted for more than a third of the $590 million used for the ROADS fund. Motor fuel and motor vehicle tax revenue have proven insufficient to fund road construction and maintenance, and income tax revenue has played a vital role in helping maintain our sprawling road system. This share could keep increasing with rising costs. Any tax cuts would jeopardize this important funding.

Income tax cuts are a tried-and-true way to ensure future budget shortfalls. Other states that have implemented income tax cuts (Kentucky, Colorado) now face severe budget shortfalls and risk cuts to core services.

Budget shortfalls create a tough choice. Either we decrease state spending, which would jeopardize funding for crucial services that people rely on for their basic needs. Or, we make up the revenue, likely by increasing regressive taxes like sales tax.

During the past two decades, Oklahoma lawmakers have enacted various revenue and tax cuts that net to more than $2 billion annually. This loss of revenue capacity for essential services means Oklahomans are not getting the public education, health care, social services, and infrastructure they need. Oklahoma’s fiscal health is at a crossroads. The state currently has record-high savings due to an influx of federal pandemic relief money. However, Oklahoma is only recently out of the woods; Oklahoma lawmakers have declared nine revenue failures since 2000. According to a 2024 budget stress test from the Legislative Office of Fiscal Transparency (LOFT), the state’s savings were not considered enough to withstand a severe or even moderate economic downturn. On top of that, the state’s revenue collections peaked during 2024, with an estimated $191 million less available for appropriation in session 2025, while needs have only grown.

Targeted tax credits are the fiscally responsible way to provide tax relief

Legislators seeking to deliver tax relief for everyday Oklahomans while maintaining state fiscal health can do so through targeted tax credits. The Child Tax Credit, the Earned Income Tax Credit, and the Sales Tax Relief Credit are the most impactful tax tools Oklahoma can use to keep promises of tax relief without tanking Oklahoma’s budget. These credits are structured to provide the most benefit to middle- and low-income families while tapering off to zero for high-income residents. Additionally, because these credits go back into the pockets of everyday Oklahomans, they are far more likely to be spent for essential purchases in our local communities, creating more of an economic impact for local businesses.

The importance of targeted tax relief aside, tax credits can easily be adjusted during difficult economic conditions. Oklahoma has one of the most restrictive laws in the nation for reversing tax cuts. This is because of State Question 640, passed by voters in 1992. SQ 640 mandates a three-quarters majority vote in both legislative chambers, or a majority vote of the people, to raise any tax. Since its passage, the legislature has only raised new tax revenue once — in 2018 in response to the education protests. However, tax credits are under no such restrictions; like most legislation, adjusting tax credits only requires a simple majority vote from lawmakers.

Because of their high flexibility, they provide a targeted tax cut to Oklahomans who need it most without risking the state’s financial health.

Income tax is Oklahoma’s tool for progress

Across-the-board tax cuts are politically popular, but time and again they’ve been shown to overpromise tax relief and under-deliver when it comes to putting money back in the pockets of everyday Oklahomans. Instead, Oklahoma lawmakers would be better served to focus on targeted tax credits — like the Sales Tax Relief Credit, the Child Tax Credit, and the Earned Income Tax Credit — that have been proven to help low- and middle-income Oklahoma families.

The income taxes are the only tax mechanism that makes our tax system fairer. Oklahomans have an opportunity to stay true to our values of caring for each other. We should prioritize tax relief that is targeted and effective by modernizing specific tax credits and not weaken existing state revenue from the state’s income tax. These options will put the state in a strong financial position while simultaneously helping those who need it most.