Budget & Tax

Calls for tax cuts increase after revenue growth

February 15, 2024

Ray Carter

In January, Gov. Kevin Stitt called a special session to cut Oklahoma’s personal income tax rate from 4.75 percent to 4.5 percent. The Oklahoma House of Representatives easily passed the tax cut, but that bill has yet to receive a hearing in the Oklahoma Senate, where that chamber’s leader said his caucus wanted to see the Feb. 15 revenue certification from the State Board of Equalization before acting.

At the group’s Thursday meeting, the State Board of Equalization approved the final revenue certification that determines how much money is available to lawmakers during this year’s session. Where the prior December estimate indicated strong growth, the February 15 estimate … showed even greater revenue growth.

The board found that the state has $11.12 billion in recurring revenue available, compared to $10.58 billion in recurring revenue available in June 2023, an increase of $543 million.

Stitt quickly noted that tax cuts can be easily passed under these financial conditions.

“It’s no accident Oklahoma has record-breaking state savings, higher than expected revenue, and an objectively strong fiscal outlook from three of the nation’s top credit agencies. These accomplishments are the result of our conservative approach to governance, and every Oklahoman will benefit once the Legislature cuts their taxes and delivers a pay raise,” Stitt said. “Oklahomans are already asking: ‘How much money does the state need?’ Make no mistake, today's news from the Board of Equalization is not an invitation for the Legislature to spend all $11.1 billion. We must continue to practice fiscal conservatism by returning excess revenue back to Oklahomans in the form of tax cuts.”

In addition to saying lawmakers should wait for the State Board of Equalization’s revenue certification before acting, Senate President Pro Tempore Greg Treat, R-Oklahoma City, has argued for repealing the state’s 4.5-percent sales tax on the purchase of groceries rather than cutting the personal income tax.

Earlier this week, House Speaker Charles McCall, R-Atoka, urged the Senate to pass both an income-tax cut and a grocery tax repeal, saying that “instant relief is available to Oklahomans as soon as the Senate takes action on legislation already available in their chamber.”

“The House has passed two measures, HB1955, the grocery tax cut which has an emergency in place, and HB1002XXX, the income tax cut, that, once voted on by the Senate, would immediately go to the governor for signature and could provide immediate relief to Oklahomans by eliminating the state portion of the grocery tax and lowering the state's income tax by 0.25%,” McCall said.

But in a press conference held shortly before the Board of Equalization met, Treat ruled out the option of passing both tax cuts.

“I don’t believe that’s in the cards,” Treat said.

He said passage of both tax measures would likely require state spending to be kept at current levels without significant spending growth.

“If we do anything that’s a substantive tax cut/tax relief/tax reform that’s above $200 million, you really kind of flatten budgets going forward,” Treat said.

Stitt has called for flat budgets at state agencies this year, saying current growth rates are not sustainable.

In recent years, state spending growth has accelerated with lawmakers passing some increases over Stitt’s objections.

The governor has noted uncontrolled spending growth threatens both state government’s long-term financial stability and Oklahomans’ pocketbooks. When government-spending increases outpace Oklahomans’ income growth, as has been the case in recent years, that threatens to put the state into shortfall in the near future and forces Oklahomans to pay higher taxes than necessary in the meantime.

At a recent press conference, Stitt noted, “Like I said in my State of the State, it’s not tax cuts that will get us in trouble, it’s the unrestricted growth of government.”

But Treat doubled down on his opposition to cutting both the income tax and grocery tax in a release issued after the Board of Equalization meeting. Treat said the revenue figures are “encouraging” and “show a lot of promise” and again touted grocery-tax repeal but dismissed calls to do more.

“While the certified numbers are positive, we must be sober-minded and realize we cannot have both a grocery tax cut and an income tax cut this year,” Treat said.

At his press conference, Treat acknowledged that the Senate Republican caucus has not endorsed the grocery-tax repeal.

One possible reason for lawmakers’ reluctance to embrace the grocery tax repeal is that Oklahomans might not see much in actual savings. While the repeal of the 4.5-percent sales tax on groceries would lower out-of-pocket costs on paper, the ongoing rate of inflation could quickly swallow up those savings by raising prices at a pace that offsets the tax reduction. And local cities could also raise their own sales tax on groceries even if the state portion is repealed, meaning Oklahomans could find themselves paying more for groceries next year even if the state sales tax on groceries is repealed.

Taxpayer advocates urged lawmakers to seize the opportunity to provide meaningful tax relief.

“Working Oklahoma families are being punished by President Biden’s inflation and ever-growing government spending,” said Oklahoma Council of Public Affairs President Jonathan Small. “While state government spending has grown by billions in the last several years, the same is not true for the paychecks of Oklahoma’s working families and small businesses, who have experienced the crunch.

“Today’s revenue certification of $543 million in recurring revenue shows that state government has plenty of growth revenue available, removing the last objection raised by opponents of tax cuts,” Small said. “We look forward to rallying Oklahomans across the state to provide more than half a billion dollars in annual well-deserved personal income tax relief. It’s now time to cut Oklahoma’s penalty on work, the personal income tax, and let Oklahomans keep more of what they earn, control the size and growth of government, and expand jobs and opportunity.”

“With today’s Board of Equalization meeting certifying revenue $500 million above all expectations, the data proves what many of us have said for months: It’s time to give back to taxpayers,” said John Tidwell, Americans for Prosperity Oklahoma state director. “The state has the funds to fulfill its budgetary obligations while giving taxpayers a break. So what’s the hold up? All the polling shows that Oklahomans want tax cuts, 65% of voters by our last survey. A strong majority of GOP voters (83%) and a healthy majority of Independents (57%) want a tax cut. There should be no more delay — other than the tired excuses from those who want to grow government — let’s cut taxes now.”

Stitt said he would sign any tax cut that lawmakers send to him, but continued to advocate for income-tax reductions, which not only increase workers’ take-home pay but increase the incentive to invest in Oklahoma and create new jobs.

“Oklahomans have waited long enough for a pay raise and for relief at the grocery store,” Stitt said. “It’s reassuring to see legislation in both chambers. There are no more excuses, let’s get those passed. I’m ready to sign any tax cut that comes to my desk.”