Plan to raise Oklahoma’s sales tax has supporters, detractors (The Oklahoman)

By Ben Felder

Oklahoma’s two largest cities would have some of the highest sales tax rates in the nation if a one-cent increase were approved by voters in November.

The average sales tax rate across the state also would become the highest in America.

Supporters of the ballot initiative spearheaded by University of Oklahoma President David Boren — State Question 779 — say it will raise $615 million for education and teacher pay increases. But some say an increase in sales tax is not the appropriate vehicle for funding schools. 

With a current rate of 8.38 percent, Oklahoma City ranks No. 14 among America’s 50 largest cities, according to the Tax Foundation. If a penny were added to the state sales tax rate, which could be proposed to voters in November for teacher pay increases, Oklahoma City’s new rate of 9.38 percent would be the fifth-highest in the nation. Tulsa, currently at 8.52 percent, would have the third-highest rate.

Oklahoma’s average combined sales tax rate of 8.86 percent is the sixth highest in the nation, records show. Add a penny to the sales tax rate and the state’s new average would surpass Tennessee as the highest.

Local city officials have expressed concern that a sales tax increase would harm future efforts to pass local capital campaign projects and tax experts say a rate above 9 percent could increase the number of purchases made online.

Supporters of the ballot initiative claim it’s the only way to increase education funding in the near future.

Open for debate

Some critics of raising the sales tax say it hits low-income families the hardest while others argue the debate should not be framed as low versus high-income residents. 

“Low income families have to spend most or all of what they earn to make ends meet and what they are spending is subject to sales tax,” said Carl Davis, a research director with the Institute on Taxation and Economic Policy.

“What we have seen in Oklahoma over the last decade is a noticeable shift from a progressive income tax system to a heavier reliance on sales tax, which is more regressive,” Davis said.

Jonathan Small, president of the Oklahoma Council on Public Affairs, is against any tax increase.

“Whether it’s the Boren tax on the ballot or another tax plan by the Legislature that increase the sales tax … they are all the wrong prescriptions,” Small said.

As far as the regressive nature of sales tax, Small said he believes that’s the wrong way to look at the issue.

“When people talk about the regressive nature of sales tax it’s pinning people against people,” Small said. “In a down economy any tax increase is going to extract hard earned money from Oklahoma families no matter the income level.”

The regressive nature of sales tax comes from the fact that two people may spend the same in sales tax for the same purchase, but the percentage of their income going to pay the tax varies based on their income level.

If a household spent $151 a week on groceries — the average amount for an American household, according to a Gallup poll — the sales tax payment in Oklahoma City would be $12.65. Over the course of a year, that’s $657.80 in sales tax payments for groceries.

Adding another penny to the sales tax rate would take an extra $78.52 just in food purchases, which is going to impact a family making $35,000 a year differently than one making six figures.

“Every little bit counts,” said Mary Stone, an Oklahoma City resident who works evenings at a drugstore. “You take a penny each time I spend (a dollar) and it’s going to add up and I could use that money.”

Stone, who makes less than $35,000 a year and supports a household of three, is paying a higher percentage of her salary in taxes than a person making more than her, according to the Oklahoma Policy Institute.

“We are asking lower income and middle income folks to pay a higher percentage and shifting the overall tax system in a more regressive direction,” said Gene Perry, a policy director at the Institute.

Perry said his organization estimates the average person in Oklahoma making more than $200,000 pays 5 percent in state and local taxes, compared to 9.4 percent for those earning between $30,000 and $50,000.

‘This or nothing’

The November vote on raising the statewide sales tax rate to fund education is acknowledged even by supporters to not be the best way to pay for schools. But OU president and former Gov. Boren has said “our choice is to either do this or nothing.”

Stone, who has a child in public school, said she wants higher salaries for teachers and more money for schools.

“But it would mean more money in taxes, which I might vote for,” Stone said.

Perry said increasing teacher pay is necessary in a state that ranks as one of the worst in average salary and increasing the sales tax rate may be one of the only methods citizens can use.

“It’s absolutely necessary for Oklahoma to fix our education funding problems and even though increasing the sales tax isn’t the best way to do it, the Legislature has shown no willingness to do it on their end,” Perry said. “Oklahoma needs to do something.”

A separate sales tax plan for teacher raises was discussed by the Legislature this year and House Speaker Jeff Hickman said it would raise the sales tax rate by nearly a half cent and expand purchases subject to sales tax. The plan was pulled on Friday. 

Tax relief credit

Some states like Texas do not tax groceries and others, like Missouri, tax it at a lower rate.

“It’s something that’s brought up pretty frequently but has not gained traction,” Perry said about exempting groceries to sales tax.

Perry said a $40 sales tax relief credit per household is offered for low income families, but doesn’t make up for the sales tax paid on groceries.

The sales tax plan that was discussed by the Legislature would have reduced the rate on groceries, Hickman said. 

City budgets

One of the reasons for higher sales tax rates in Oklahoma is because cities rely exclusively on sales tax to fund general budgets. In Oklahoma City, part of the sales tax rate was approved by voters to fund MAPS 3 to construct a new convention center, downtown streetcar line and other projects.

The base state sales tax rate of 4.5 percent ranks No. 36 in the nation. But adding the average city sales tax takes the state to No. 6, which highlights the impact local rates have on sales tax. Because city governments rely exclusively on sales tax for general funding, they often raise rates to cover municipal expenses.

Sales tax increases are also easier to gain voter approval when compared to income and property tax increases, Davis said.

“Sales tax increases tend to poll well,” Davis said. “I could not tell you how much I paid in sales tax last year and for a lot of families they don’t realize how much an increase would cost them.”

Davis said a sales tax rate above 9 percent may encourage some shoppers to do their spending online.

“A sales tax above 9 percent is well above average and you have to think it would provide more incentive to not pay it by moving more purchases online,” Davis said.

“The whole reason that taxes exist is to fund public services. For citizens it’s about weighting how important more taxes are to funding services.”

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