Progressive Features of the Tax System

Oklahoma’s income tax is its only progressive tax. Oklahoma’s income tax is progressive because  the standard deduction and personal exemption mean that taxes apply only to income above a threshold level, and because the tax rate increases as income increases above that threshold. However, legislative reductions in the tax rate for the top income bracket have reduced the progressivity of Oklahoma’s individual income tax.

Certain tax deductions and credits that are broadly available also make the income tax more progressive. Many of these credits reduce the tax paid by qualifying low- and middle-income taxpayers.

• The standard deduction can be claimed on Oklahoma taxes by all taxpayers who also claim the standard deduction on their federal tax return. The standard deduction in 2020 is $12,700 for a married couple filing jointly, $6,350 for a single individual, and $9,350 for a single head of household.
• The earned income tax credit (EITC) is available to many qualifying families with children who make up to $56,844and to single earners without children making up to $15,820 (for the 2020 tax year). Oklahoma’s EITC is 5 percent of the federal EITC and can be up to $286 for a married couple with two children in 2020. The EITC has historically been refundable, meaning that taxpayers who owe little or no income tax can get the credit as a refund. However, the legislature in 2016 ended this feature of the state EITC, making it a non-refundable tax credit. 
• The sales tax relief credit, commonly known as the grocery tax credit, reimburses low-income taxpayers for part of the sales tax they pay on groceries and other essential items. This credit is $40 per exemption (typically $40 per person in the household) for taxpayers with gross incomes up to $20,000 ($50,000 if over 65, disabled, or claiming a dependent in the household). Unlike the state EITC, the sales tax credit is refundable to those who owe less in taxes than the amount of the credit.
• The child care and child tax credits are available to households with children and federal adjusted gross income of $100,000 or less. The credit is for 20 percent of the federal child care tax credit or 5 percent of the federal child tax credit (normally $50 per child), whichever is larger.

Oklahoma’s property tax is somewhat regressive, but has two progressive features. First, a residential property in which the owner lives qualifies for a homestead exemption. This exemption reduces the assessed value of all properties by $1,000. For a $50,000 house, this amounts to an 18 percent tax reduction. For a $200,000 house, the reduction is much smaller, 4.5 percent.  Oklahoma also freezes growth in property taxes for senior homeowners with income below the median level of their county.  However, the property tax remains a larger burden for the lowest 20 percent of taxpayers. Lower income households generally rent and do not qualify for a homestead exemption.  They also spend a larger share of their income on housing costs. Oklahoma does not offer property tax relief to renters. (This model assumes that property owners pass property taxes on to their tenants.)

The Legislature has taken some steps to make the tax system less regressive. Beginning in 2017, taxpayers who claim itemized deductions on their state tax return can no longer effectively deduct their state income taxes from state income taxes, a quirk of the tax system commonly labelled the “double deduction.” Itemized deductions were further limited in 2018, with most deductions now capped at $17,000 per year.

‹‹ Go back to Tax Fairness | Go on to Regressive Features of the Tax System ››