State and Local Tax Distribution

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Oklahoma’s tax system is very centralized. As compared to the rest of the country, more of Oklahomans’ taxes go to the state Capitol rather than to their local governments. Local governments collect just 37 percent of all tax revenue in Oklahoma, compared to 42 percent nationally. The same is true of non-tax revenue, which includes user charges, insurance trusts and other sources. Considering all revenue except transfers between governments, 38 percent of all revenue is local in Oklahoma, compared to 45 percent nationally.

distribution-of-revenue-state-vs-local-2013

There are some positive aspects to centralized revenues, including:

  • taxes and fees are more uniform across the state than in less centralized states; and
  • centralized taxes and fees can shift the burden of paying for government away from lower-income communities like rural areas and older suburbs and towards more affluent cities and suburbs.

On the other hand, a centralized revenue system has troubling aspects.

  • People have less ability to set revenues that meet the needs of their own communities. This is both because state laws put many limits on local funding sources and choices and because high state rates can “crowd out” local funding options.
  • Local governments are beholden to the state for funding, which can be reduced or eliminated by the Legislature and Governor. Recent Oklahoma examples include sales and property tax exemptions that cut funding for local services without providing a substitute. In 2016, Oklahoma local governments got 27  percent of their revenue from the state, compared to 33 percent in 2006. Lost state support means local governments must find other sources or reduce spending on schools, roads, and other state-supported functions.

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