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Budget & Tax

Ray Carter | October 5, 2023

Tax hikes don’t explain revenue growth

Ray Carter

When Gov. Kevin Stitt and House Speaker Charles McCall called for cutting Oklahoma’s personal income tax this week, both men noted that state revenue increased after prior tax cuts due to the positive impact that tax cuts have on economic growth.

But in the Senate, some lawmakers suggested that Oklahoma’s revenue growth is not due to an income-tax cut passed in 2021, but is instead the result of tax increases passed primarily in 2017 and 2018.

“I was listening to others this morning on a press conference. They attributed increases in our revenue to, I believe, the quarter-point decrease that we did two years ago,” said Senate President Pro Tempore Greg Treat, R-Oklahoma City, addressing State Treasurer Todd Russ. “I would love to see an analysis and have your thoughts on how much is attributed to that quarter-point income-tax cut versus the increases we did in 2017.”

But legislative records and data collected by the Oklahoma Tax Commission show the current surge in Oklahoma’s income-tax collections is not the result of prior income-tax increases.

While lawmakers raised a wide range of taxes through 2018, only a share of those tax increases impacted income-tax collections. The six measures enacted that impacted tax increases involved $232.7 million in combined income-tax increases.

Those six measures included elimination of a state personal income-tax deduction (raising income tax obligations by $87.3 million), making the earned income tax credit nonrefundable ($25.9 million), targeting a tax credit for investment in new jobs ($12.7 million), limiting the time that Oklahomans can claim tax refunds ($9.1 million), freezing the standard deduction ($3.7 million), and capping itemized deductions ($94 million).

In 2021, the Oklahoma Legislature passed and the governor signed into law a measure that cut the personal income tax by a quarter-point, lowering the rate from 5% to 4.75%. That bill also made the earned income tax refundable again. That tax cut, which took effect in January 2022, saved Oklahomans $236.7 million annually.

Mathematically, that means the 2021 tax cut effectively offset the impact of the prior income-tax increases approved in the 2017 and 2018 period with the $236.7 million tax cut only marginally larger than the combined $232.7 million in combined income-tax increases passed through 2018.

Net personal income tax collections in the state of Oklahoma totaled $3,260,446,921 in fiscal year 2018, and increased to $4,393,714,127 in fiscal year 2023, which concluded on June 30. That’s an increase of more than $1.1 billion in income-tax collections.

None of the current income-tax collections can be attributed to prior income-tax increases because of the offsetting income-tax cut that took effect in 2022. But advocates of tax cuts note that research has consistently shown tax reductions spur grater economic growth that can lead to increased tax collections at lower rates.

During his recent appearance before the Senate Appropriation Committee, Russ noted that in the economic cycle following every income-tax cut for many years in Oklahoma “the revenues actually increased.”

Stitt similarly noted that since the 1999 state budget year, as Oklahoma’s personal income-tax rate has been reduced from as high as 7% to the current rate of 4.75%, state government revenue has steadily increased even though the tax rate declined.

“When you lower taxes you are expanding the tax base, the economy is being fueled, more businesses move, more people hire, more jobs are here, we’re not losing people to lower-tax states,” Stitt said. “It is great for everyone.”

Ray Carter Director, Center for Independent Journalism

Ray Carter

Director, Center for Independent Journalism

Ray Carter is the director of OCPA’s Center for Independent Journalism. He has two decades of experience in journalism and communications. He previously served as senior Capitol reporter for The Journal Record, media director for the Oklahoma House of Representatives, and chief editorial writer at The Oklahoman. As a reporter for The Journal Record, Carter received 12 Carl Rogan Awards in four years—including awards for investigative reporting, general news reporting, feature writing, spot news reporting, business reporting, and sports reporting. While at The Oklahoman, he was the recipient of several awards, including first place in the editorial writing category of the Associated Press/Oklahoma News Executives Carl Rogan Memorial News Excellence Competition for an editorial on the history of racism in the Oklahoma legislature.

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