Oklahoma taxes are the lowest in our region, and falling

This week the Oklahoma Department of Mental Health and Substance Abuse Services began alerting care providers that they will have to shut down the state’s entire outpatient behavioral health system, with just a few exceptions, if lawmakers don’t find ways in special session to fill the agency’s $75 million budget hole. The Oklahoma Health Care Authority is planning to cut rates paid to doctors, hospitals, and nursing homes by 9 percent — a scenario that would likely put more rural hospitals out of business at a time when pregnant women in rural Oklahoma already are being forced to travel long distances for basic care. Teachers are continuing to flee the state as one study found those who left Oklahoma are making on average $19,000 more per year.

With headlines like these, few can dispute that Oklahoma’s state budget is deeply deficient. The details of how Oklahoma ended up in its latest budget mess are complicated. However, the big picture reason why Oklahoma struggles year after year to fund basic services is simple — we’ve slashed our revenue base.

Oklahoma taxes are the lowest in our region and third lowest out of all 50 states. In 2014, even before the most recent income tax cut went into effect, Oklahomans paid the 49th lowest share of our incomes to state and local taxes out of all 50 states and Washington D.C. Only Tennessee and Florida had lower taxes. The 7.9 percent of personal income that Oklahomans contributed to state and local taxes was significantly lower than all of our surrounding states and more than one-fifth less than the national average of 10.1 percent.

It’s often argued that Oklahoma should try to emulate the economic strategies of Texas. As the chart shows, one way we could do that is by paying more taxes to invest in core public services. If Oklahomans were simply paying the same percentage of our incomes in taxes as Texans do, we would have had about $1.65 billion more state and local revenues in 2014. If we paid taxes at the average of all our surrounding states, we would have had $2.23 billion more.

Not only are the taxes being paid by Oklahomans well below other states — they’re also well below what we’ve paid in the past. Our taxes as a percentage of income have been going down since the turn of the century.

As a state, we are contributing much less than we used to for all of the services of state and local government. In this context, it should be no surprise that we’re struggling to keep teachers in schools, maintain basic health care services, adequately staff our prisons, or do many other basic jobs that Oklahomans expect from our state.

We should note that the percentages discussed here are for the state as a whole. Currently low- and middle-income taxpayers pay a higher percentage of their incomes in state and local taxes than the state average, while the wealthiest 20 percent pay less. This overall regressivity is due to Oklahoma’s heavy reliance on sales and excise taxes.

Still, Oklahoma has repeatedly cut income taxes and allowed tax breaks to grow substantially. The cost of cutting the top income tax rate from 6.65 percent to 5 percent alone exceeds $1 billion annually, and the cost of all tax breaks of the past decade combined is about $1.5 billion. Meanwhile, we are losing close to $500 million annually by taxing the first 36 months of oil and gas production at only 2 percent, while other tax breaks combined cost the state hundreds of millions annually. As a result, we’ve had to cut spending deeply.

The situation we find ourselves in today is a result of those decisions. If we want something different, we must do something different. That means lawmakers must increase taxes and reduce tax breaks to bring revenues into the budget.