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What’s up this week at Oklahoma Policy Institute? The Weekly Wonk shares our most recent publications and other resources to help you stay informed about Oklahoma. Numbers of the Day and Policy Notes are from our daily news briefing, In The Know. Click here to subscribe to In The Know.
This Week from OK Policy
A county-by-county look at how increasing Oklahoma’s Sales Tax Relief Credit benefits families, seniors: Oklahoma’s Sales Tax Relief Credit, which stands at $40 per person in a qualifying household, has not been adjusted since its creation more than 30 years ago. HB 3353 proposes to increase the credit from $40 to $180 per person and slightly increase the qualifying income limits with a phase-out. Our interactive map shows county-by-county the impacts of the expanded credit. [Emma Morris / OK Policy]
Proposed changes would imbue state judiciary system with unnecessary politics (Capitol Update): Senate President Pro Tempore Greg Treat, R-Oklahoma City, has introduced Senate Joint Resolution 43 that would abolish our current court system and establish a new judicial department. Among the far-reaching changes proposed in SJR 43 is a new way of selecting our appellate and lower-court justices and judges. [Steve Lewis / OK Policy]
Policy Matters: Investing in Oklahoma’s healthy future: As the federal government begins winding down its COVID-19 public health emergency declaration later this year, Oklahoma can make smart investments that help qualifying state residents keep access to their health care through the state’s Medicaid program, SoonerCare. [Ahniwake Rose / The Journal Record]
From the OK Policy Archive
Report: Oklahoma among least transparent states for state budget process: A report from OK Policy earlier this year found that the average state deliberated about their budget for 82 days. During the 2021 Legislative session, Oklahoma lawmakers took three days for budget deliberations. This was the nation’s third shortest such timeframe last year. [OK Policy] Note: As of May 15, the 2022 Legislative session has been in session for 97 days, and there are 12 days left before the session closes. A state budget for Fiscal Year 2023 has yet to be publicly introduced.
- A Better Path Forward: Focus on Transparency [PDF]
- Policy Matters: Three Days in May: In the 1990s, Oklahoma’s budget process was more open and participative, often spanning the entire session. Budget bills were introduced early in the session, including early opportunity for public action. Additional budget issues were resolved through the end of session, and many bills were discussed in open meetings. That transparency has all but disappeared in recent years. The budget process is rushed with virtually no opportunity for public input. [Ahniwake Rose / Journal Record]
Weekly What’s That
Corporate Income Tax
Oklahoma’s corporate income tax is set at a flat rate levied upon the taxable income of every corporation doing business within the state or deriving income from business within the state. The rate has historically been set at 6 percent, but under HB 2960, approved in the 2021 legislative session, the rate is lowered to 4 percent as of January 1, 2022. The tax is based on a three-part formula that looks at the portions of a company’s sales, property and payroll that is based in Oklahoma.
The corporate income tax generated $510.4 million in Fiscal Year 2020, which was 4.9 percent of total state tax collections. The corporate income tax tends to be, along with the gross production tax, one of the state’s most volatile tax sources, fluctuating dramatically from year to year and often coming in far above or below certified estimates. This volatility has been explained by changes in corporate tax laws, the use of corporate tax breaks, and the outsized impact that a small number of corporations can have on total collections. Under a 2016 law, a portion of corporate income tax collections are allocated to the Revenue Stabilization Fund in years where collections are projected to exceed their five-year average.
The corporate income tax has generated a declining share of total tax revenue over time as more businesses incorporate as S-Corps and LLCs (which report their income on the personal income tax return of shareholders) and as companies find ways to take advantage of loopholes and tax breaks to limit their corporate tax liability.
Look up more key terms to understand Oklahoma politics and government here.
Quote of the Week
“More eyes on a budget makes for better, more sound, financial decisions.”
– Tulsa World Editorial Board [Tulsa World]
Editorial of the Week
Proceed with caution. Some state tax revenues showing contraction.
We keep hearing news about Oklahoma’s record revenues; however, State Treasurer Randy McDaniel is urging caution as lawmakers lick their chops on how to spend it, or how to cut back on taxes.
Of course, earlier in the legislative session several proposals made the rounds to cut taxes in certain areas. Of those plans, our editorial board agreed that perhaps temporarily suspending the state sales tax on groceries would be the most helpful to families dealing with inflationary prices for necessities, such as food and fuel.
Then, just a few weeks ago the Legislature gave the governor the authority to provide a $700 million incentive to try to lure a large battery manufacturing facility to the state. With that kind of huge investment, talks of tax cuts have tapered off.
McDaniel reported that collections in April totaled $2.04 billion, topping the previous one-month record of $1.58 billion in April 2019.
Even though the record performance numbers show Oklahoma’s economy to be strong, McDaniel sees signs of potential problems down the road. Sales tax and use receipts aren’t keeping up with the rate of inflation, and gross production and motor vehicle revenue are lower than collections last April. Taxes on oil and natural gas dropped 1.2% from one year ago to $132.1 million while motor vehicle revenues fell by 8.2% to $72 million.
So, McDaniel’s cautionary tale is not an overreaction. We still don’t know of the outcome of the $700 million incentive package, but if Oklahoma does land that project, tax cuts probably will need to be off the table, particularly with the trends McDaniel is seeing.
Numbers of the Day
- $300 million – The Oklahoma House has passed bills to cut corporate and individual taxes that combined would cost more than $300 million in annual revenue. [Oklahoma Policy Institute]
- $20 million – In 2025, the tax cut in HB 3350 will mean $20 million less in the 1017 Fund. Oklahoma’s schools would be directly impacted by this lost revenue because the 1017 Fund is directly appropriated to public education. [Oklahoma Policy Institute]
- 1 year – A personal income tax cut like the one proposed in HB 3350 would provide more money in 1 day to the top one percent of earners than it would to the lowest 20 percent of earners in 1 year. [Oklahoma Policy Institute]
- One-third – A personal income tax cut like the one proposed in HB 3350 would send only about one-third (35%) of the benefit to the bottom 80 percent of earners. Nearly two-thirds (65%) of the benefit will go to the top 20 percent of earners. [Oklahoma Policy Institute]
- 12% – Oklahoma has cut taxes by nearly 12% since 1997. During this time, Oklahoma’s economic growth – other than the historically volatile oil and gas industry — has been substantially lower than that of the surrounding region and the nation. Concurrently, Oklahoma has also seen comparatively less employment growth. [Oklahoma Policy Institute]
What We’re Reading
- Reality Check: Drastic Income Tax Cuts Are Dangerous Despite What Anti-Tax Supporters Say [Institute on Taxation and Economic Policy]
- Implementation Risks Lurk in US State 2022 Tax Cut Plans [Fitch Ratings]
- More states are switching to flat income taxes. Critics say it’s relief for the wealthy [FA Playbook via CNBC]
- States Should Create and Expand Child Tax Credits [Center on Budget and Policy Priorities]
- Five things that economists know, but sound wrong to most other people [The Conversation]
