OKPOLICY.ORG
FOR IMMEDIATE RELEASE
- Dave Hamby, Oklahoma Policy Institute, (918) 810-0182, dhamby@okpolicy.org
- Ellie Blachman, Center on Budget and Policy Priorities, (202) 325-8718, eblachman@cbpp.org
- Jon Whiten, Institute on Taxation and Economic Policy, (917) 655-3313, jon@itep.org
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Attempts by Oklahoma elected officials to reduce or eliminate the state’s personal income tax are part of a national tax-cutting trend that could undermine funding for the shared services that can move our state out of the bottom 10 states for quality of life and overall well-being for all Oklahomans.
Shiloh Kantz, Executive Director of the Oklahoma Policy Institute, spoke during a national press call today about the situation in Oklahoma.
“Decades of unfocused tax cuts have kept Oklahoma from investing billions of dollars annually into the shared services that could help improve the outcomes for our residents,” she said. “This has been a giant missed opportunity to invest in the well-being of all Oklahomans. It doesn’t have to be this way.” [Full transcript of her comments here]
Recent analyses show states across the country are attempting to use temporary budget surpluses to hide the true cost of tax cuts and to tilt the balance of power further toward the wealthy and corporations.
Many states have been on a tax-cutting spree over the past three years, using budget surpluses from federal COVID-19 aid to pass costly, permanent tax cuts tilted toward the wealthy and corporations, according to research by the Center on Budget and Policy Priorities (CBPP). Now that federal economic relief has expired, and states have mostly spent the fiscal aid, the damage is showing up on state balance sheets.
The latest CBPP report shows that 26 states cut their personal and/or corporate income tax rates, 13 of them multiple times. Permanent cuts to tax rates are especially harmful to states because they continue to reduce revenues year after year. The cuts will shrink revenues by nearly $30 billion annually, totaling $124 billion by 2028. The costs will continue to grow if policymakers do not reverse course.
During the last 20 years, Oklahoma lawmakers have cut the personal income tax nine times, bringing it from 6.75 percent in 2003 to 4.75 percent today. Over time, the impact of those cuts is compounded as the state population grows and the value of a dollar decreases with inflation. OK Policy ran an analysis that showed if Oklahoma had maintained its state and local taxes at the 2004 level, the state budget would have been $2.1 billion higher in 2017 than it actually was. These dollars could have been invested in the well-being of Oklahomans and our communities.
“The price tag of these recent cuts will grow over time. That’s due, in large part, to policymakers’ choice in many states to obscure the true costs of the cuts by phasing them in over several years,” said Wesley Tharpe, Senior Advisor for State Tax Policy at CBPP. “In Nebraska, for example, a series of cuts will cost an estimated $1 billion annually once fully phased-in, roughly equivalent to what that state spends on its entire Medicaid program. Tax cuts of this scale could translate into serious harm.”
By enacting deep tax cuts for the wealthiest, many states have also shifted their tax systems to become more regressive, according to a recent distributional analysis of tax systems in all 50 states and the District of Columbia published by the Institute on Taxation and Economic Policy (ITEP). The majority of state and local tax systems are upside-down, meaning that the wealthy paying a far smaller share of their income in taxes than low- and middle-income families.
The ITEP report showed Oklahoma has one the nation’s most unfair tax systems, ranking 16th in its latest Who Pays? Report. Because Oklahoma relies heavily on sales tax and use taxes, it places a larger weight on low- and middle-income Oklahomans. The lowest-income Oklahomans pay almost twice as much of their household income towards state and local taxes than does the top 1%.
Eliminating the personal income tax would worsen that inequality. Without the personal income tax, the lowest-income Oklahoman taxpayers would face a state and local tax rate that is 300 percent higher than the top 1%.
Shrinking revenues jeopardize funding and tie the hands of future policymakers, who will have limited resources to tackle emerging issues, such as child poverty, the health of pregnant or postpartum people, or housing affordability.
“Tax cutting always requires tradeoffs. If you choose to collect less taxes, then you’re also choosing to do less of something else,” said Aidan Davis, State Policy Director at ITEP. “It might be smaller teacher pay raises, it might be less frequent road maintenance, it might be a weaker safety net for folks facing hard times. Whatever it is, you’re giving something up and will likely be talking about cutting services that the public really needs and wants.”
