Budget & Tax
Curtis Shelton | October 4, 2023
Quarter-point income-tax cut is very doable
Many state lawmakers want to cut the state income tax by a quarter-point, lowering the rate to 4.5%. What effect would this have on the current revenue estimate for fiscal year 2024?
In 2023, the state collected $4.39 billion in individual income taxes. A quarter-point rate cut would drop income tax collections by 5.26 percent, or $231 million. Given that the current revenue estimate for fiscal year 2024 is $13.25 billion (per the June Board of Equalization meeting), that would leave $13.02 million in revenue remaining.
Last session, the Legislature appropriated $11.7 billion, according to the Oklahoma House of Representatives FY-2024 Fiscal Year Summary.
The Legislature is only authorized to appropriate up to 95 percent of the revenue estimate. That means that, even with a decline in revenue to $13.02 million, the Legislature would have $12.38 billion available for appropriations—which is well above the $11.7 billion that was appropriated at the end of this year’s legislative session.
It also means the Legislature would not have to use any of the roughly $1.8 billion sitting in the state’s two main savings accounts to offset the revenue losses.
It is also important to keep in mind that General Revenue Fund collections have come in $25 million above the estimate so far for fiscal year 2024. While it is still early in the fiscal year, the price of oil has climbed from $70 a barrel to nearly $90 a barrel, generally a good sign for Oklahoma’s economic outlook overall.
All of the above estimates are done on a static basis, meaning no population growth or GDP growth is taken into account. Realistically, though, both the empirical research and Oklahoma’s own experience suggest that beneficial effects of a tax cut should be expected.
Policy Research Fellow
Curtis Shelton currently serves as a policy research fellow for OCPA with a focus on fiscal policy. Curtis graduated Oklahoma State University in 2016 with a Bachelors of Arts in Finance. Previously, he served as a summer intern at OCPA and spent time as a staff accountant for Sutherland Global Services.