Budget & Tax

With grocery tax behind us, it’s time to cut the state income tax

Jonathan Small | March 4, 2024

Does the greatest benefit come from cutting the state’s penalty on work, the personal income tax, or from exempting groceries from the state sales tax? That question is on the minds of Oklahoma policymakers.

But the answer is straightforward. While exempting groceries from the state sales tax may provide some financial benefit to individuals, it does not make people more likely to invest in Oklahoma, create new jobs, or raise wages.

When it comes to generating those economic benefits, income-tax cuts are far superior.

The income tax is effectively taken from Oklahomans before they spend a cent of their earnings, making it more harmful than the sales tax.

Also, the argument that sales-tax cuts benefit the poor has also been proven false.

In April 2022, the Tax Foundation found the poor pay more in sales taxes when states exempt groceries because the sales-tax rate on other goods is typically kept higher to make up the difference.

“The poorest decile of households experiences 9 percent more sales tax liability with a grocery tax exemption than they would if groceries were taxed and the general rate were reduced commensurately,” the Tax Foundation reported.

Also, most states also impose the sales tax on prepared food (fast food) even when exempting groceries. Since low-income families typically rely on prepared food more than upper-income families, lower-income families disproportionately pay more in sales tax on food even when groceries are exempted, the Tax Foundation noted.

Weaning state government from dependence on income tax makes it less likely Oklahomans will face tax increases in the future. Why? Because sales-tax collections are more stable than income-tax collections.

With the income tax, state spending surges when incomes increase, which can happen rapidly. But incomes can also decline significantly (as happens in a recession). Lawmakers then feel pressure to maintain inflated levels of government spending by passing additional tax increases.

Sales taxes, in contrast, rise more gradually and decline less severely, meaning you have fewer and less severe state revenue shortfalls when sales tax is the main revenue source.

No one doubts the income tax impacts where, and how much, people invest in new businesses—unlike the sales tax. The competition between states is very real and those with lower (or no) income tax are faring best. Lawmakers in Arkansas recently voted to reduce that state’s personal income tax rate, meaning Oklahoma has a higher income-tax rate than three bordering states: Texas, Arkansas, and Colorado.

Even with repeal of the state portion of the sales tax on groceries, Oklahoma lawmakers can still afford to cut the state’s income-tax rate given this year’s substantial growth revenue.

It’s time to cut Oklahoma’s penalty on work.

Jonathan Small President

Jonathan Small


Jonathan Small, C.P.A., serves as President and joined the staff in December of 2010. Previously, Jonathan served as a budget analyst for the Oklahoma Office of State Finance, as a fiscal policy analyst and research analyst for the Oklahoma House of Representatives, and as director of government affairs for the Oklahoma Insurance Department. Small’s work includes co-authoring “Economics 101” with Dr. Arthur Laffer and Dr. Wayne Winegarden, and his policy expertise has been referenced by The Oklahoman, the Tulsa World, National Review, the L.A. Times, The Hill, the Wall Street Journal and the Huffington Post. His weekly column “Free Market Friday” is published by the Journal Record and syndicated in 27 markets. A recipient of the American Legislative Exchange Council’s prestigious Private Sector Member of the Year award, Small is nationally recognized for his work to promote free markets, limited government and innovative public policy reforms. Jonathan holds a B.A. in Accounting from the University of Central Oklahoma and is a Certified Public Accountant.

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