Policy Challenges We Face

Policy Challenges We Face

Oklahoma governments have achieved a great deal. Taxes and other revenues have helped us invest in education for young people, health care for those who are most in need, safe streets and neighborhoods, and sufficient public infrastructure to support a growing economy. In some areas we have continued to make progress in recent years, but in others we have fallen behind and in all areas we still have much to do. This section addresses two important long-range fiscal issues: our inequitable tax system and the prospect that the gap between desired level of public services and what we can generate in revenues–“the structural deficit”–will continue to grow.

This section reaches several major conclusions.

  • Oklahoma state and local government faces a long-term structural deficit in which ongoing revenues will not be enough to pay ongoing spending commitments.
  • The structural deficit results from a variety of factors, including rapidly increasing health care costs, an aging population, commitments for employee and retiree benefits, a tax system that does not keep up with the economy, and tax cuts and exemptions.
  • The structural deficit can be controlled by better forecasting and reporting long-term commitments, delaying new tax cuts until revenues recover, and funding new mandates on state and local governments. The state will require new revenues and/or reductions in service to restore and maintain long-term fiscal balance.
  • Oklahoma’s tax system is inequitable. The lowest one-fifth of income earners pays 10.4 percent of their income in state and local taxes while the highest pays 7.6 percent. This “regressivity” results from relying on sales and excise taxes and on gambling as a major source of government revenue.
  • Oklahoma can make its tax system fairer by increasing the income tax credit for sales taxes paid by low-and moderate income residents. and making the income tax more progressive.

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