Budget & Tax

House, Senate budget plans include worthwhile items

May 6, 2024

Jonathan Small

The Oklahoma House of Representatives and Senate have each unveiled their state budget plans for the pending fiscal year. Each side has included goals that merit praise.

The House budget plan includes a quarter-point reduction in the state’s personal income tax, which would reduce our top rate from 4.75 percent to 4.5 percent. Because the personal income tax is a penalty on work and investment, the tax depresses economic growth. The lower the rate, the better the job creation and opportunity for all Oklahomans. While the best rate would be zero, any move in that direction is welcome.

Moreover, Oklahoma is part of a 50-state competition for new investment. And our neighbors have jumped ahead.

Oklahoma’s current top rate of 4.75 percent is higher than several neighboring states, including Texas (which has no personal income tax), Arkansas (where the rate is 4.4 percent), and Colorado (4.4 percent), while Missouri’s top rate of 4.8 percent is almost the same as Oklahoma’s rate. Among bordering states, only Kansas and New Mexico have significantly higher personal income-tax rates.

Even if Oklahoma’s rate is cut to 4.5 percent, it will remain higher than the rates in three of the six neighboring states. But the gap will have closed significantly with two states.

Also, the tax cut is easily “affordable.” While the tax change will ultimately save Oklahomans $230 million to $250 million per year, due to the timing of its implementation it will have only a $96 million impact in FY26 (and that’s ignoring the pro-growth effect of tax cuts). Lawmakers have a $543 million surplus this year.

To their credit, members of the Senate want to create a “workforce development” program that would provide scholarships to students pursuing degrees and employment in high-need areas. Most importantly, that program would operate outside of the direct control of the state regents.

Under the Oklahoma Constitution, state lawmakers can set total appropriations for state colleges, but the regents direct money to specific college or degree programs. As a result, we continually see college leaders divert money from high-need areas such as nursing or engineering into degree programs that provide less value to the state—because those lower-value programs are ultimately bigger revenue generators for colleges.

As state Sen. Adam Pugh, R-Edmond, has noted, engineering programs have higher overhead because “the professors tend to be much harder to get and have a higher salary requirement,” so engineering programs are “more expensive than throwing 500 kids in a big hall that are pursuing a philosophy degree.”

But no one doubts we need engineers more than philosophy majors. The Senate plan would put priority on real needs.

As the budget process continues, Oklahomans should encourage their lawmakers to include both these proposals in the final budget agreement.