Members of the Oklahoma Senate have provided final passage to legislation that cuts Oklahoma’s income tax and puts the tax on the path to a rate of zero, sending the bill to Gov. Kevin Stitt.

House Bill 2764 cuts Oklahoma’s top income-tax rate from 4.75 percent to 4.5 percent starting in 2026 and restructures the current six income tax brackets into three.

In addition, HB 2764 mandates future reductions in the top income-tax rate when state tax collections grow by a specific amount, allowing for that process to be repeated over and over until the personal income tax is completely repealed in the future.

To trigger a rate reduction, total state tax collections must increase by an amount that exceeds the prior highest-year tax-collection total by an amount equal to the estimated cost of another quarter-point tax cut multiplied by 1.25 percent.

HB 2764 is expected to reduce Oklahomans’ tax payments by a combined $340.5 million annually.

“This tax modernization plan represents common-sense changes that help level the playing field for all Oklahomans,” said Senate President Pro Tempore Lonnie Paxton, R-Tuttle. “By simplifying our tax code and providing a pathway to lower taxes, we’re making our state more competitive and attractive for businesses and families alike. Oklahoma has long been committed to fiscal responsibility, and this legislation allows us to continue that tradition while also creating a long-term vision for phasing out the personal income tax in a sustainable way.”

“This legislation is the result of thoughtful collaboration and a shared vision for Oklahoma’s future,” said House Speaker Kyle Hilbert, R-Bristow. “By reducing the tax burden and streamlining our tax system, we’re fostering an environment that encourages growth and prosperity for all citizens. House Bill 2764 is more than just a tax cut. It’s a comprehensive plan that rewards economic growth, simplifies the tax process, and puts Oklahoma on a path to long-term competitiveness.”

Opponents Prefer Government Spending

Opponents argued the state should increase government spending rather than approve tax cuts for working Oklahomans.

“How will Oklahoma compensate for the potential loss of this revenue from a lower income-tax rate without cutting essential services?” asked state Sen. Carri Hicks, D-Oklahoma City.

“We’ve cut taxes since I’ve been here,” Paxton responded. “We’ve cut the grocery tax and we’ve cut the income tax—and we have yet to cut services. We’ve actually expanded the amount of money we spend on those services every year.”

Paxton noted that the state’s recurring budget has grown from about $7.5 billion when he was first elected to over $12 billion today.

Hicks also asked, “What evidence is there that cutting the income tax will lead to sustained economic growth?”

“I think you just look at the history,” Paxton responded.

He noted that since 2004, the state's personal income tax has been cut seven times.

“All but one of those times, the income the next following year continued to increase,” Paxton said.

State Sen. Regina Goodwin, D-Tulsa, noted that several years ago the state was “one-and-a-half billion in the hole,” and claimed those shortfalls were the result of “various cuts just like this.”

“It seems like we’re repeating some of the same mistakes that we did some 15 years ago,” Goodwin said.

However, the budget shortfalls referenced by Goodwin were tied to a major oil bust that resulted in the loss of jobs and income across Oklahoma, as well as declining sales. Records show the Oklahoma government would have faced a major shortfall even with higher tax rates at that time.

Oklahoma Tax Commission reports show Oklahomans lost more than $13 billion in taxable income from 2014 to 2015, and families reduced purchases subject to state sales and use tax by $4.1 billion from state budget year 2015 to 2016. From September 2015 to September 2016, roughly 21,800 good-paying oil and gas and manufacturing jobs were eliminated in Oklahoma.

Paxton also noted Oklahoma will still have $3.5 billion in savings to address any future downturns, even after the tax cut, a level of savings far above anything achieved prior to 2019.

But Goodwin complained that lawmakers have not spent more of those state savings, even as she also claimed the state may face escalating costs in the future.

“While you say we’ve got a reserve, we also have not really used that reserve to address some of our needs that remain outstanding,” Goodwin said.

Three Senate Republican lawmakers joined Democrats in opposition to cutting taxes.

One of the Republican opponents, state Sen. Brent Howard of Altus, said Oklahoma’s $3.5 billion in savings is insufficient to meet what he predicted will be exploding government costs in the next few years.

“The budget surpluses that we have, what we’re sitting on right now, will not last seven years,” Howard said. “They won’t last two.”

But state Sen. Dusty Deevers, R-Elgin, said there are ways to address the government's financial issues that do not require higher levels of taxation.

“We could cut expenses,” Deevers said.

He rattled off a list of potential budget changes that could be undertaken to address any shortfall, including things like leaving positions unfilled at state agencies and modest cuts to agency budgets.

“It’s not like we don’t have the money,” Deevers said. “We do. And we’re taking people’s money from their labor. We’re taking from their labor and we’re taking from their property, and that’s an unjust form of taxation. That’s theft.”

He said consumption taxes are a better model for funding government.

HB 2764 passed the Oklahoma Senate on a 34-11 vote. The bill now proceeds to the governor.