Budget & Tax , Economy

Ray Carter | February 19, 2024

With Oklahoma top 10 in GDP growth, Stitt says tax cuts can keep it going

Ray Carter

Oklahoma’s state gross domestic product (GDP) growth is stronger than all but eight states, according to recent data. Some policymakers welcome that news and want to keep the trend going.

Gov. Kevin Stitt says tax cuts—specifically, putting the state’s personal income tax on the path to full repeal—is the best way to achieve that goal.

“Long term, my job is to try to grow the state and make us the most business-friendly state,” Stitt said. “And I would prefer to have an income-tax cut, get us down to zero.”

Lawmakers are currently discussing tax cuts with calls to cut the personal income tax and exempt groceries from the state sales tax both being debated. Lawmakers have $543 million in growth revenue available this year.

However, Senate President Pro Tempore Greg Treat, R-Oklahoma City, recently said he does not support passage of both proposals this year, saying that “we cannot have both a grocery tax cut and an income tax cut this year.”

Stitt has said he would sign both tax cuts into law. But if he had to choose just one, he said he would select the income-tax cut because it would make Oklahoma more attractive for business investment, which results in the creation of more jobs and higher wages.

“That actually is going to help education. It’s going to help infrastructure. It’s going to help workforce. It’s going to help quality of life,” Stitt said. “Because we’re going to have more and more businesses moving here.”

Oklahoma’s state economic growth is currently stronger than what is occurring in much of the country. When ABC News recently reviewed state economies, the news outlet found that Oklahoma recorded 6 percent GDP growth, annualized, in the third quarter of 2023, based on U.S. Bureau of Economic Analysis data.

Only eight states had higher real gross domestic product growth than Oklahoma.

Notably, of the handful of states with stronger GDP growth, three have no personal income tax: Florida (6.1 percent GDP growth), Nevada (6.3 percent GDP growth), and Texas (7.7 percent GDP growth).

Lawmakers in Nebraska, which was also among the eight states with stronger GDP growth than Oklahoma, voted last year to lower that state’s personal income tax from 6.64 percent to 3.99 percent by 2027, which will give it a significantly lower tax rate than Oklahoma.

The top bracket in Nebraska also kicks in at a much higher level than Oklahoma’s top bracket. Nebraska’s top personal-income-tax rate is imposed on individuals with income above $37,130 and married couples with income above $74,260. In contrast, Oklahoma’s top income-tax rate is imposed at $7,200 for single filers and $12,200 for joint filers, meaning Oklahoma’s tax impacts low-income families much more aggressively.

Grocery Exemptions and Unintended Consequences

Proponents of exempting groceries from the state sales tax have argued that low-income families will get much more benefit from that change than from an income-tax cut.

But research shows that is not necessarily true.

In April 2022, the Tax Foundation found that the poor actually pay more in sales taxes when states exempt groceries from the sales tax because the sales-tax rate on other goods is typically kept higher to make up the difference.

“The poorest decile of households experiences 9 percent more sales tax liability with a grocery tax exemption than they would if groceries were taxed and the general rate were reduced commensurately,” the Tax Foundation reported.

Most states also impose the sales tax on prepared food even when they exempt groceries from the sales tax. Since low-income families tend to rely on prepared food more than upper-income families, lower-income families disproportionately pay more in sales tax on food items even in states that exempt groceries from the sales tax, the Tax Foundation noted.

In March 2023, the State Chamber Research Foundation similarly noted that calls to exempt groceries from state sales tax are “popular, yet often economically counterproductive.” If a sales tax is applied broadly with fewer exemptions, that translates into a lower sales-tax rate that “limits distortions in economic decision making,” the foundation found.

“That is, compared to other types of taxes (such as income tax), broad-based sales taxes generate less influence on the individuals’ economic decisions,” the State Chamber Research Foundation stated. “Thus, generally speaking, states do better to rely more on broad-based sales taxes than on taxes on labor or capital investment, such as income tax or tangible property taxes. From a state revenue perspective, sales taxes tend to be a more stable revenue stream than income taxes, enabling more predictability in state budgeting.”

The Tax Foundation recommended that policymakers provide a $75 per-person tax credit to offset the impact that grocery sales taxes have on poor families, rather than adopting a complete sales-tax exemption for all grocery purchases.

“Sales taxes are more stable and pro-growth than many other forms of taxation, especially income taxes, so policymakers have an opportunity to increase tax progressivity, enhance revenue stability, and improve economic competitiveness by taxing groceries, providing a credit, and using the remaining revenue from base broadening to cut income taxes,” the Tax Foundation stated.

Stitt has said an expansion of Oklahoma’s existing tax credit for grocery purchases by low-income families is one way to address concerns about tax regressivity.

Supporters of income-tax cuts have noted that Oklahoma’s economy has continued to grow following prior tax cuts, which have lowered the state’s income tax from a top rate of 7 percent to 4.75 percent today. That growth has offset the projected “losses” from income-tax cuts and allowed state government spending to continue increasing.

While Oklahoma’s economy appears stronger than most today, Stitt has noted those dynamics are subject to change based on what policymakers in other states do—and what policymakers in Oklahoma do, or don’t do, to keep the state attractive to business investment and job creation.

The governor has noted, repeatedly, that many states are now cutting their income-tax rates and Oklahoma could fall behind.

“If you look at the area around us, Nebraska has just cut taxes and Arkansas and Iowa,” Stitt said. “We have to stay up with our region to be the most business-friendly state.”

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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