As lawmakers consider putting Oklahoma’s personal income tax on a gradual path to full repeal, opponents have asked what will happen to state finances once the income tax is no more.

Data in a recent report from the Tax Foundation provides an answer: Oklahoma government will enjoy more budget stability and less severe budget downturns if the income tax is eliminated and the government instead relies more on existing sales tax collections.

The report noted that sales taxes “offer greater stability than income taxes, as can be seen in aggregate state tax collections during and immediately after the Great Recession.”

Nationwide, sales tax collections declined 8 percent from 2008 to 2010, a period known as the “Great Recession.” In contrast, individual income taxes fell a much more severe 16 percent while corporate income tax collections dropped 25 percent during that time.

The same trend occurred in Oklahoma during those years.

“In Oklahoma in 2010, individual income tax collections were down 20 percent and corporate income tax receipts slipped 40 percent,” the Tax Foundation report noted, “while sales tax collections only declined 6 percent.”

The report further stated that the “relative stability of sales taxes compared to income taxes was not unique to the Great Recession.”

In addition to protecting Oklahoma state government from massive revenue swings, a system that does not tax work and investment through an income tax, and instead relies on existing taxes on consumption through a sales tax, will produce greater economic growth, the report noted.

“Consumption taxes are much more economically neutral by comparison, and the economic literature consistently finds that sales taxes are less of an impediment to economic growth or location decisions than are income taxes,” the Tax Foundation report stated.

Because Oklahoma’s sales tax is “imposed where a good or service is consumed, not where it is produced,” the report stated that “unlike income taxes, the sales tax does not discourage investment or job creation.”

House Bill 1539, by state Rep. Mark Lepak, would cut Oklahoma’s 4.75 percent personal income-tax rate by a quarter point each time that net state revenue increases by at least $300 million, continuing the process until the tax is completely repealed over time.

The bill currently awaits a vote on the floor of the Oklahoma House of Representatives.