In his sixth “State of the State” address, Gov. Kevin Stitt urged lawmakers to not only cut taxes but also put the personal income tax on the path to full elimination over time.

“When I stop to think about it, think about what Oklahoma looks like in 20 years, here’s what I see: I see people moving here from all over the country so they can keep more of their hard-earned money thanks to our zero-percent income tax,” Stitt said. “I see entrepreneurs flocking here and we are the business headquarters capital of the world.”

He pointed to the contrasting examples of two states—Florida and New York—to highlight what can occur when policymakers keep taxes low and government spending restrained.

The state of New York has 19.8 million people and an annual state budget of $233 billion a year. In contrast, Florida has a larger population than New York with 22 million people, but the annual budget for Florida state government is about half the amount spent in New York, about $116 billion a year.

Stitt noted that Florida is “one of the fastest-growing states” today and has no personal income tax, while New York’s top personal income tax rate is 10.9 percent.

“If more government spending was the answer, Florida would be falling apart,” Stitt said. “The opposite is true. It’s states like New York and California that are falling apart. They’re facing huge, massive budget crises, and people are moving here, every single day, from states like California, because they see opportunities and they see freedoms and they see they can keep more of their hard-earned money.”

Oklahoma’s top personal income tax rate, which applies to virtually all levels of income, is 4.75 percent. Stitt recently called a special legislative session to cut the rate to 4.5 percent. The Oklahoma House of Representatives approved the tax cut, but the Senate has declined to take up the bill so far.

Last year, Stitt urged legislators to cut the top rate to 3.99 percent, but no income tax rate cut was approved during the 2023 session.

Opponents have suggested state budget shortfalls that occurred from about 2016 to 2018 were caused by tax cuts.

But those budget shortfalls were generated by an oil bust that severely harmed the state economy.

Oklahoma Tax Commission reports show that 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 oil and gas and manufacturing jobs were eliminated in Oklahoma.

Under those conditions, shortfalls were unavoidable, regardless of income-tax rates, without significant state savings in reserve—which Oklahoma did not have at that time.

However, Stitt noted that today Oklahoma does have record savings that will allow the state government to handle future economic downturns without abrupt spending cuts, meaning there is much room in the state budget to reduce tax rates.

The real danger to fiscal stability, he said, is not tax cuts, but spending increases that compound over time and ultimately outpace revenue growth.

“It’s not tax cuts that will get us in trouble, it’s the unrestricted growth of government,” Stitt said. “That’s why I’m calling for flat budgets across (state) government this year.”

In a press conference responding to Stitt’s speech, Senate President Pro Tempore Greg Treat was noncommittal about cutting the income tax and instead touted his proposal to repeal the state sales tax on groceries.

“The grocery sales tax, state-portion only elimination that I’m talking about, is a Greg Treat idea that I’m trying to build support for,” said Treat, R-Oklahoma City.

He said grocery-tax repeal does not have the support of 25 Republican senators at this point but suggested that there may be close to 25 votes required to pass the grocery tax cut out of the Senate once Democratic supporters are included.

Treat also acknowledged that local communities could raise local sales tax rates and effectively offset any savings from the state-tax repeal on the grocery tax.

Although the state sales tax rate is 4.5 percent, local cities and counties often impose an additional sales tax on top of the state rate, leaving many areas with a combined state-local sales tax rate of 9 percent to 11 percent.

“I believe in the wisdom of local leaders to chart a course for their own municipality or their own county, and if they want to recklessly go out and raise it in lieu of the state portion, their voters should hold them accountable, either in a positive or a negative way,” Treat said.

House Democratic Leader Cyndi Munson denounced Stitt’s call to lower Oklahomans’ income taxes.

“There’s no way we can cut income taxes and continue to invest in Oklahoma,” said Munson, D-Oklahoma City. “He talked about flat budgets and calling on agencies to submit budget requests to us that are flat. A flat budget is a cut.”

But Stitt, who has noted that tax cuts would provide financial benefit to Oklahoma families dealing with the de facto income reduction caused by the high inflation of the Biden administration, noted that history has shown tax cuts continually fuel economic growth in Oklahoma.

“Two years ago, we cut a quarter point from the individual tax rate and we lowered business tax by two full percentage points,” Stitt said. “Since then, revenue collections have increased by $1.5 billion. That’s been the trend after every tax cut we’ve passed. So I’ll sign any tax cut that comes to my desk. Because as we have growth, it should be automatic to return excess to the taxpayers, not to seek out bigger government programs.”