Budget & Tax, Education

Budget plan includes tax cuts, school choice, and savings

May 13, 2021

Ray Carter

Gov. Kevin Stitt and legislative leaders have announced a state budget agreement that cuts taxes for all Oklahomans, increases school-choice opportunities for families, and leaves state government with more than $1 billion in savings.

“We want Oklahoma to be the state that says, ‘You know what? We’re open for business,’” Stitt said. “We want to lower taxes in Oklahoma. We want to be business-friendly.”

The budget agreement will spend $8.3 billion, but also cuts the state’s personal-income and corporate tax rates while setting aside $800 million in savings. That deposit will raise total state savings above $1 billion again for only the second time in state history.

The agreement will cut Oklahoma’s personal income-tax rate from 5 percent to 4.75 percent, ultimately providing $170 million in annual tax savings for working families. Oklahoma’s top income tax rate kicks in at just $8,700 of taxable income for single filers and $15,000 for couples.

It also cuts the state’s corporate income tax from 6 percent to 4 percent, reducing that tax burden by $110 million annually, according to estimates.

House Appropriations & Budget Committee Chairman Kevin Wallace, R-Wellston, said a personal income tax rate of 4.75 percent will give Oklahoma one of the lower rates in the nation. He also noted that five states have no corporate income tax and of the remainder, Oklahoma’s new corporate income-tax rate will be the third lowest in the nation.

“Both of these measures are putting Oklahoma in the top 10 for sure,” Wallace said.

The plan also raises the tax-credit cap on the Oklahoma Equal Opportunity Education Scholarship Act, a program that provides a tax credit for donations to private scholarship-granting organizations. Private-school scholarships funded by the program go primarily to low-income children or those with special needs.

The budget plan would raise the cap on the school-choice program to $25 million, paired with another $25 million in tax credits for those who donate money to public schools for various needs.

Stitt said raising the cap on the Oklahoma Equal Opportunity Education Scholarship program is about giving “parents and students more choices.”

Senate President Pro Tempore Greg Treat, R-Oklahoma City described the school-choice measure as a highlight of the budget agreement.

“This budget delivers substantial savings, provides tax relief, and invests in education,” Treat said. “Of particular note is the increase in caps on the Equal Opportunity Scholarship program, a terrific program making a difference in the lives of deserving Oklahoma students who otherwise wouldn’t have the chance to pursue a high-quality education.”

The plan also includes millions in facilities funding for public charter schools for the first time, ending a major funding disparity in the public school system. That funding change could result in increased school-choice options in the charter sector. While charter schools have been dramatically underfunded compared to traditional public-school sites, charter schools are nonetheless among the state’s highest-performing schools when it comes to academic results, despite typically serving low-income students.

At the same time, K-12 public schools will receive another $171.8 million under the budget plan, providing a record-high appropriation of $3.2 billion. That money comes on top of local property tax funding for schools, which generally increases every year, and a massive infusion of federal COVID funds for schools that can be used for a wide range of expenses.

“It invests a record amount of funding—a record amount of funding—in our public schools,” Stitt said.

During the 2018 legislative session, lawmakers approved $610 million in tax increases and other revenue measures while dealing with the aftermath of an oil bust and associated downturn. Over the several-year course of that downturn, lawmakers raised taxes and fees by more than $1 billion.

However, officials said the recent focus on building up state savings leaves Oklahoma much better prepared today to deal with future downturns, allowing officials to reduce taxes in a responsible manner.

“We’re saving $800 million,” Stitt said. “They could have raised the base level of expenses up there. But it’s super-important that you always think about reoccurring revenue and reoccurring expenses. And in the past, when I’ve looked at past budget problems and what’s happened, is when you keep raising those base-level expenses across the board above reoccurring revenue you really get yourself into a bind.”

“We are strengthening reserves again. We’ll have another deposit in the Rainy Day Fund at the end, the close, of this fiscal year,” said House Speaker Charles McCall, R-Atoka. “I think we’re (in a) much, much better of a fiscal position than we were five years ago when we were facing revenue-raisers to correct a fiscal crisis in the state.”

He noted that money left in the private sector is reinvested and fuels job creation and economic growth.

“In the state of Oklahoma, our trajectory is very strong, very positive,” McCall said, “and I believe that these tax-relief measures are necessary, the timing is perfect, and they are going to benefit everyone in the state of Oklahoma.”

The House Democratic caucus quickly decried the budget as embodying misplaced priorities, criticizing its tax cuts, the amount of money put into savings, and support for school choice.

“While an extra $500 million in savings sounds nice, our citizens are literally paying the price,” House Minority Leader Emily Virgin, D-Norman, said in a release.

A budget plan unveiled by House Democrats earlier in the week called for repealing the state sales tax on groceries, but also called for $93 million in income-tax increases by creating two new brackets that would raise rates to 6 percent and 7 percent, respectively. The plan also called for another $108 million in tax increases by eliminating the capital-gains tax exemption for all businesses except agriculture.

Even with those two tax increases, combined with the existing huge growth in state revenue this year, the Democratic budget plan provided for just $300 million in new savings.

Virgin also said House Democrats could not “vote for any budget” that included money for tax-credit scholarships.

Rep. Cyndi Munson, the Oklahoma City Democrat pegged to take over Virgin’s caucus leadership role following the 2022 elections, separately tweeted that tax-credit scholarships “help the rich get richer.”

The Oklahoma Equal Opportunity Education Scholarship Act requires that the share of low-income children who receive scholarships must be equal to the statewide average of children who qualify for free-and-reduced lunches, which is currently close to 60 percent.

The Oklahoma Equal Opportunity Education Scholarship Act has been described as life-changing and lifesaving. Its beneficiaries include students previously trapped in schools that produce poor academic outcomes, students attending “sober school” while recovering from addiction, children recovering from trauma and abuse, and homeless students.