Budget & Tax

Oklahoma’s tax cuts improved competitiveness—but the race isn’t over

July 1, 2026

Ray Carter

From 2005 to today, Oklahoma policymakers have reduced the state’s personal income tax from a top rate of 6.65 percent to 4.5 percent.

When that process began in 2005, data collected by the Tax Foundation show 28 states had lower rates than Oklahoma, while 21 states had higher income-tax rates.

But since 2005, many states, particularly those with Republican legislatures and governors, have aggressively reduced the income tax.

If Oklahoma’s tax rate had been left at 6.65 percent, the state would have imposed a higher tax rate on work and investment than all but 11 states in 2026, according to Tax Foundation data.

Currently, only California (13.3 percent), Connecticut (6.99 percent), Hawaii (11 percent), Maine (7.15 percent), Massachusetts (9 percent), Minnesota (9.85 percent), New Jersey (10.75 percent), New York (10.9 percent), Oregon (9.9 percent), Vermont (8.75 percent), and Wisconsin (7.65 percent) impose income-tax rates greater than 6.65 percent.

Instead, Oklahoma’s current top rate of 4.5 percent is lower than the rates in 26 states and tied with Utah’s rate.

Oklahoma’s top rate is also scheduled to continue declining by a quarter-point in future years when tax collections grow beyond a set amount, allowing the tax to eventually be phased out completely.

But other states are moving even faster than Oklahoma.

In 2005, Arkansas imposed a top income tax rate of 7 percent. By the start of 2026, Arkansas’ top rate had been slashed to 3.9 percent, and lawmakers there recently lowered it again to 3.7 percent.

In 2005, North Carolina imposed a top income tax rate of 8.25 percent. Today, North Carolina’s top rate has been cut to 3.99 percent, and legislative leaders in that state recently announced a budget plan that could reduce it further to 3.49 percent.

Members of the Republican-controlled North Carolina Legislature want to lower that state’s personal income tax rate to 3.49 percent in calendar years 2027 through 2029, then to 3.24 percent from 2030 through 2032, and then cut the rate again to 2.99 percent from 2033 through 2034. After that, two additional quarter-point rate cuts could occur based on revenue-growth triggers, potentially bringing North Carolina’s top income-tax rate to 2.49 percent. 

North Carolina Senate leader Phil Berger, a Republican, declared, “Our state’s fiscal health remains in great shape. This is a responsible spending plan that takes aim at bureaucratic bloat without endangering core services. This keeps our promise to reduce the tax burden for all North Carolinians, while expanding access to incredible educational opportunities, keeping our communities safe, and solidifying North Carolina’s status as the best state in the nation.”

The plan could still face a veto from North Carolina’s Democratic governor.

However, if the North Carolina plan is implemented, Oklahomans will pay an income-tax rate that is 22 percent higher than that of their North Carolina counterparts in 2027 and 18 percent higher than that of their Arkansas neighbors.

A recent report from the National Taxpayers Union Foundation, “Migration in Minutes,” found that people are generally moving to low-tax states, based on Internal Revenue Service (IRS) data for 2022.

The five states losing a resident most frequently were California (every 2 minutes, 37 seconds), New York (3 minutes, 20 seconds), Illinois (9 minutes, 42 seconds), New Jersey (17 minutes, 36 seconds), and Massachusetts (18 minutes, 32 seconds).

The five states gaining domestic migrants the fastest were Texas (gaining a new resident every 4 minutes and 40 seconds), Florida (4 minutes, 42 seconds), North Carolina (7 minutes, 36 seconds), South Carolina (8 minutes, 54 seconds), and Tennessee (12 minutes, 15 seconds).

Oklahoma ranked 10th best, with someone moving here every 41 minutes and 45 seconds in 2022.

“Recently, the IRS released its 2022 update to its data series on interstate migration by taxpayers,” the National Taxpayers Union Foundation report stated. “In it, we see a continuation of the trends that we have seen for years: taxpayers are fleeing high-tax states and heading to low-tax ones.”