Tax cuts now reducing state revenues by over $1 billion per year

Financial crisisA new report by OK Policy finds that the cost of state income tax cuts since the mid-2000s has grown to over $1 billion annually. Repeated tax cuts and shrinking state budgets have left state services severely weakened, even before next year’s expected massive budget shortfall that could reach or exceed a billion dollars.

These billion-dollar tax cuts have come at the direct expense of funding for core public services that are important for the prosperity and well-being of Oklahomans. At the same time, the report finds that tax cuts have not brought the boost to the state’s economy that supporters predicted, and they have given the biggest cash benefits by far to the wealthiest Oklahomans while doing little for low- and middle-income families.

Under a series of bills passed under bipartisan agreements between 2004 and 2007, the top rate was cut from 6.65 percent in 2003 to 5.5 percent by 2009. These mid-2000s tax cuts also included a “trigger” that automatically reduced the top rate to 5.25 percent, just as Oklahoma was emerging from recession, in 2012. Now under legislation passed in 2014, the top rate has fallen again to 5.0 percent and could fall to 4.85 percent as early as 2018. Altogether, these tax cuts are reducing state revenues by $1.022 billion per year, according to an analysis prepared for OK Policy by the Institute on Taxation and Economic Policy.

revenue-lost-to-tax-cuts-by-agencyBased on the budget proportions of the largest state agencies, that means without tax cuts Oklahoma could be investing $356 million more into K-12 education, enough to provide raises of about $6,000 per teacher or to combine teacher raises with additional days of instruction, reduced class sizes, and expanded priority programs such as early reading instruction. Higher education could have received an additional $138 million, enough to fully fund the Complete College America Oklahoma Plan initiative. The Department of Human Services would have an additional $97.2 million, more than enough to serve the many thousands of families on the waiting list for home-and community-based services to help those with developmental disabilities. The Department of Mental Health and Substance Abuse Services would have $48.4 million additional dollars — a direly needed boost when Oklahoma has among the highest rates of mental illness in the nation and 60 percent of Oklahoma adults with mental illness are not receiving treatment.

Instead of investing in these and other core public services over the past decade, the state has experienced a continuing budget crisis. Even after the economy recovered from a severe national recession, Oklahoma’s funding for core services remains well below pre-recession levels. That has meant acute teacher shortages, college tuition and fee hikes, critically understaffed correctional facilities, longer waiting lists for services, and lower reimbursement rates for medical and social service providers.

With or without tax cuts, Oklahoma would be facing an immediate budget shortfall as a result of low energy prices. But without the tax cuts of the past dozen years, we would be approaching this latest downturn from a far stronger starting point. And with larger budget surpluses during times of growth, we might also have saved more money in reserves to help us through our current economic challenges.

While some tax cut supporters and state officials have claimed that reducing the top rate helps almost all Oklahoma families because it kicks in at a relatively low amount of taxable income ($7,200 for a single person or $12,200 for a married couple), the reality is that after applying the standard deduction and personal exemptions, a large number of Oklahoma families do not reach this income level.

Of the total $1.022 billion in income tax cuts from lowering the top rate, the wealthiest 20 percent of households — those making on average $246,000 a year — have enjoyed 72 percent of the benefit. And the top 5 percent of households — those making on average $568,000 a year — alone received 43 percent of the benefit. Meanwhile, those with household income of $62,200 and less — 60 percent of households — have received just 10 percent of the income tax reductions. Altogether, the wealthiest 1 percent of households in Oklahoma has received nearly the same share of the tax cuts as the bottom 80 percent.


Meanwhile, based on the experience in Oklahoma and other states that have significantly cut income taxes in recent years, tax cuts have shown little benefit to the economy. Four of the five states that enacted the largest personal income tax cuts in the last five years have experienced total job growth and personal income growth below the national average since the tax cuts took effect. Oklahoma did experience strong economic growth in recent years due to a booming energy industry, but as oil and gas prices have declined, the state economy has reversed course, with growth levels falling to worst in the nation in the most recent quarter. Even during those good economic years, the state has already slashed funding to many agencies by 20 to 30 percent, leaving us more vulnerable and unprepared for an energy industry downturn.

The report concludes that if Oklahoma is ever to emerge from our perpetual budget crisis, we must reexamine the priority being given to cutting taxes without responsibly assessing the impact on the state economy and what it will take to preserve vital public services. The problem has been years in the making and will take years to fix. A sensible place to start is to repeal the most recent tax cut and to cancel the next tax cut already scheduled for as early as 2018. As Oklahoma State Treasurer Ken Miller recently said, “common sense dictates that until the state proves it can live within its means, it really should stop reducing them.”

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Former Executive Director David Blatt joined OK Policy in 2008 and served as its Executive Director from 2010 to 2019. He previously served as Director of Public Policy for Community Action Project of Tulsa County and as a budget analyst for the Oklahoma State Senate. He has a Ph.D. in political science from Cornell University and a B.A. from the University of Alberta. David has been selected as Political Scientist of the Year by the Oklahoma Political Science Association, Local Social Justice Champion by the Dan Allen Center for Social Justice, and Public Citizen of the Year by the National Association of Social Workers.

5 thoughts on “Tax cuts now reducing state revenues by over $1 billion per year

  1. This is obscene. The most wealthy Oklahomans, those with the deepest pockets and nothing to lose by paying these trifles more are benefiting today on the backs of every Oklahoman for the next decade. One year without school means so much more than one year without school.

    For the poorest Oklahoman children it means eating on four days of the week rather than five. It means the chance of having healthcare through school nurses goes down. It means that class sizes explode as more and more teachers evacuate this sinking ship. And the $5,000 one time joke on the state question is just that. It won’t bring in or keep excellent teachers, it will keep the most dedicated, and the worst.

    May Ave. fell down. Not really due to these tax cuts, But due to the myopia they represent. When the furthest the politicians can see is their next election and their own paychecks they don’t think about maintenance on bridges and roads. Much less schools and how education helps all of us.

    When education falls apart the state falls apart. Our entire future. These children will need remediation in college, no matter what college they want to attend. They will be lucky to get in to any college in America and will face huge debt as they will have no chance at scholarships.

    And no new businesses as it’s impossible to get businesses to import all of their workers (who wouldn’t come anyway as their children’s educations would be destroyed) and there won’t be enough guality employees in state, as they will have horrible educations.

  2. Many of the top 1% in Oklahoma pay NO state income tax!!! (like our President Elect)

    The millionaire Executives of Oklahoma based companies that get their compensation mainly in stock are able to sell their appreciated stock after owning it for 2 years and owe ZERO state income tax!! thanks to Oklahoma’s Capital Gains tax break on OK based companies.

    “It’s also important to remember that the burden of proof for this tax break is not just whether it benefits the economy, but whether that $157 million tax break helps the economy more than would comparable investments in core public services. With Oklahoma making dramatic cuts to higher education, on top of the largest cuts in the nation to our K-12 funding formula, it’s hard to make the case that the need for this tax break is greater than the need for reinvesting in core services.

    Meanwhile, there’s some evidence that that tax break could be violating the Commerce Clause of the U.S. Constitution by discriminating against out-of-state companies. Oklahoma avoided that issue being brought before the U.S. Supreme Court only by settling with a Florida company that challenged it in court.”

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