Budget & Tax , Education , Law & Principles

Curtis Shelton, Greg Forster, Ph.D., Byron Schlomach, Ph.D. & Andrew C. Spiropoulos | February 21, 2022

Bold reforms for a post-pandemic Oklahoma

Curtis Shelton, Greg Forster, Ph.D., Byron Schlomach, Ph.D. & Andrew C. Spiropoulos


In the aftermath of the pandemic, Oklahoma’s policymakers should put parents in charge of education with a universal Education Savings Account, eliminate the personal income tax, and reform our state’s dysfunctional regulatory system.

Educational Reform

In our education system as in other policy areas, the public health emergency that began in 2020 has been a massive disruption of the status quo. Unsurprisingly, we are now surrounded by a swarm of voices claiming this or that newfangled approach will take advantage of the moment for “transformational change” in education. Amid this storm of unpredictable winds, now is the time to plant our feet on the firm foundation of parent empowerment. Let parents be the judge of which innovations should be tried and how. That way, the next generation of education can be built on the principles of equality, freedom, justice, and accountability for excellence. Putting parents in charge of education through school choice programs, like a universal Education Savings Account, can make transformational change effective, plausible, and sustainable. Otherwise, “transformational” aspirations are likely to produce a lot of wasted effort, special-interest giveaways, and unsustainable techno-futurist digital fads.

What Kind of Change Do We Want?

Parent Power and the Goals of Education

Rhetoric about “change” and “transformation” is as ubiquitous as it is superficially appealing. From the American Revolution to the civil rights revolution to the internet revolution, Americans have always been a forward-thinking people. We look at the world and say, “we can do better.” And as Calvin Coolidge wisely warned in his address on the 150th anniversary of the Declaration of Independence, this salutary hope for progress comes with a dangerous temptation: that progress becomes an idol, an end in itself—change for the sake of change, rather than for the sake of justice and freedom. The question that really matters is not whether there will be change, but what kind of change we want.

It is important not to mistake the moment. The mere fact of disruption does not, by itself, have any inherent tendency to favor good changes over bad ones. Periods of disruption can loosen the grip of dysfunctional institutions and make space for positive change. They can also give special interests a golden opportunity to grab more swag and more turf while everyone is distracted by the emergency. They can even do both at the same time.

Of course, it is always the right time to do the right thing. But during a crisis, it is especially important to think carefully about first principles. A crisis is the time when we will be most sorely tempted to compromise our most important commitments under the sway of special interests and specious fashions. Let’s hold on tight to what is good.

What are the primary goals of our education system? We want to help children achieve academic excellence and be prepared for productive lives. We want to help children cultivate strong character and acquire the habits of honesty, diligence, generosity, and self-control that are necessary to a life worth living. And we want to realize as best we can our national aspiration to be a community of equality and freedom with justice under the law for all people.

The Resources Approach

One strategy for pursuing these goals that never lacks special-interest advocates is to pour more money into the system. This includes not only direct calls for higher spending levels, but all approaches that focus on increasing the system’s resource inputs—for example, smaller classes or teacher pay and credentials. It is worth reminding ourselves that all approaches focused on improving education by increasing resource inputs have failed, consistently, for generations, and reminding ourselves why they have failed.

Increased spending has consistently failed to improve educational outcomes, because it does not change the systemic problems that cause the government school monopoly to malfunction (including its tendency to divert spending away from the uses where it is really needed).[1] Smaller classes have consistently failed to improve educational outcomes, because the costs greatly outweigh the benefits when class-size reduction is done at scale, and because the need to hire large numbers of new teachers undermines teacher quality.[2] Increasing teacher pay and credentials has consistently failed to improve educational outcomes, because under current educational and hiring practices, these metrics are not closely associated with actual teacher quality.[3]

Technocratic Approaches

The failure of resource-based reform establishes that the problem is systemic—it is qualitative, not quantitative. We do not need to simply do more of what we are doing now; we need to change the kind of thing we are doing.

A more systemic strategy for reform is aggressive regimes of test-based accountability, such as the federal government’s attempt in the 2010s to create testing and enforcement systems around Common Core. However, only a limited number of the outcomes we most desire for education are really well-suited to test-based accountability; math skills can be evaluated by a mass-produced standardized test, but not an understanding of Shakespeare, to say nothing of moral character or our national aspirations to freedom and equality. Test-based accountability systems also have a dangerous tendency to usurp the curriculum—schools sacrifice attention to other goals that are not being tested to focus on those that are. And the politicians responsible for creating these systems have consistently failed to use tests in appropriate ways—for example, relying on score levels instead of score gains, which is more a measure of student demographics than of schools’ performance. These concerns and others help explain why test-based accountability has never had the robust political support it would require for sustainability.[4]

A related kind of systemic approach is educational techno-futurism, which seeks to revolutionize education by using digital-learning technologies to revolutionize the methods by which we supply it. As face-to-face contact has become problematic during the COVID-19 crisis, techno-futurists are positioning themselves as the champions of educational transformation.[5] This is a systemic approach because it recognizes that our problem is qualitative rather than quantitative—that we need to change what we do rather than simply doing more of what we already do. It is related to the test-based accountability strategy because it focuses on technocratic efficiency rather than principles; it understands the educational problem not as a moral challenge that requires us to think about what education should be, but as an operational challenge that only requires us to think about how we can more efficiently deliver it.

Over the past decade, the much-ballyhooed overturning of the educational status quo by new technological approaches such as MOOCs (massive open online courses) has been stymied by such challenges as low completion rates and unsatisfactory measurement of outcomes.[6] New technologies have proven their worth in helping produce new and more accessible educational resources that teachers can use, such as the instructional videos produced by Khan Academy. But improving the actual delivery of education to children is a more complex problem than improving the delivery of data packets to laptops. It’s well and good to invent a new operating system for computers, but inventing a new operating system for human beings turns out to be harder—and more morally fraught—than it looks.

Putting Parents in Charge

We must go further back to find first principles. Instead of just doing more of the same, or focusing on technocratic efficiency, we must ask the moral question. What is education?

Human nature points to a clear answer: education is child-rearing, and it belongs to parents. Human beings are not generic units, interchangeable and automatically functional, like the dollars in a teacher union’s bank account or the bubbles on a standardized test or the ones and zeros in a computer program. Human beings are unique creatures with unruly minds, hearts, and wills that are made to become mature, responsible, and free in a just community of equals. And it is obvious to anyone who knows the natural “facts of life” that the process of preparing a human being for mature freedom rests with families, since that is where human beings originally come from (the exact processes involved being a subject outside our current scope). To say that schools exist to educate is to say that they exist to help families rear their children.

Putting parents in charge of education is also the approach that aligns with the historic self-understanding of the American people. Our nation is dedicated to the proposition that we can live together, free and equal, through justice under the law based on human rights, rather than having to ground social order in the illiberal imposition of one person’s or one group’s way upon others. Only parental control of education can align our education system with this aspiration, allowing each family an equal right to raise its own children in accordance with its own beliefs, thus creating a just community in which all people are respected. A government school monopoly necessarily imposes conformity upon dissenters, unjustly relegating some citizens to an unequal position in the community. And since we all know this to be true, as long as the monopoly exists we will continue to see cultural groups mobilizing to fight culture wars for control of what views the government monopoly will teach. Thus the monopoly not only undermines justice by creating inequality and unfreedom, it keeps us whipped up in a state of hostility toward those who are different from us, undermining the universal goodwill for the dignity and rights of all people that the American experiment presupposes.

Parent power is the only effective accountability system. How can we judge whether a given educational approach—say, a new way of doing digital learning—is genuinely likely to give a child a better education, and to prepare the child for life in the American civic community, as opposed to being a special-interest payoff or an ephemeral fad? We have one highly reliable test: Ask that child’s parents. This is the natural and right way to hold schools and other education service providers accountable for excellence, as well as to build a nation where equality and freedom prevail over the conformism and dependency of a government monopoly.

Designing a Transformational Parent Empowerment Program

There is no need to reinvent the wheel when considering how to design a program for transforming education by putting parents in charge. Decades of success have allowed the school choice movement to discover what works. There are, however, some new questions to consider in the context of the COVID-19 challenge.

School choice puts parents in charge of education by allowing each family to decide for itself what school, public or private, will best serve their own child’s unique needs. Public funds follow the child to the school of the parents’ choice, instead of being locked into whatever government school the student is arbitrarily assigned to based on home address. This aligns schools with the needs of families, in terms of their understanding of their mission and their organizational culture as well as in terms of direct financial incentives, rather than with politicians and special interests.

A large body of empirical research finds that these types of school choice programs improve educational outcomes both for students who use them and students who remain in public schools, as well as alleviating ethnic segregation, strengthening the civic values of our democracy, and saving money.[7] There are now 76 programs in 32 states plus D.C. and Puerto Rico that support families choosing non-government educational options. These programs serve more than 600,000 students. Oklahoma is one of 18 states with multiple private school choice programs.

Education Savings Accounts

As school choice has become more successful in the past generation, program design has evolved and improved. One key lesson to learn from the history of modern school choice is the importance of easy parent access and flexibility. Where parents can customize the use of educational funds, new possibilities emerge—a particularly important consideration amid a public health emergency.

Older program designs include school vouchers and tax-credit scholarships. Under these systems, families receive a single-use, “one and done” financial instrument, either in the form of a voucher provided by the government that they can redeem for tuition at their school of choice, or in the form of a tuition scholarship dispensed by a nonprofit organization funded by tax-deductible donations. While both these systems are good for providing school choice, they are not the best designs now available. Because they only provide a single-use instrument, they incentivize private schools to raise their tuition levels to match the amount available, which funds bloat and inefficiency. Tax-credit scholarships also give private scholarship organizations discretion over who receives scholarships, as opposed to giving parents a right to exercise choice.

By contrast, Education Savings Accounts (often called “ESAs”) maximize parent access and flexibility. Under this design, instead of receiving a “one and done” voucher or scholarship, parents receive the public funding to support their children’s education in a special account that they own and control. Funds in the account can only be used for educational purposes, but parents have flexibility to buy services from multiple providers, or to save money by opting for schools with lower tuition. When a student leaves the K-12 system, unspent funds can be used for college or other educational opportunities. Thus, ESAs do not subsidize bloat in private schools. They also give parents additional flexibility by making it possible to use the funds on multiple providers—say, private school tuition plus supplementary educational services from another source.

The recent public-health crisis makes the flexibility of Education Savings Accounts more attractive than ever. States have spent two years struggling to figure out how to accommodate students in school buildings, torn between parents who want to return to in-person education and parents concerned about exposure to the pandemic.

The underlying problem is the need for a one-size-fits-all solution, which Education Savings Accounts would remove. Parents who want either partially or wholly digital learning, and/or hybrid approaches that combine the two, could mix and match services. Parents wanting traditional approaches could have them, perhaps finding small ways to use supplemental services (either in-person or digital) to make improvements on the margins. Meanwhile, some number of parents will want bolder alternatives, and we would all benefit from their initiative because it would help all of us discover what might work better.

Universal Choice

Another important lesson of the past generation is that universal school choice is preferable over giving choice to limited populations. Programs created with stricter limits on which students they are allowed to serve (e.g., family income restrictions) and how they are allowed to serve them (e.g., overregulation of participating schools) struggle, both educationally and politically. When programs create more freedom for more parents, they create more benefits for schools and students, and have a larger political base.[8]

Of the dozens of programs that exist in 32 states, the only failed example of school choice in U.S. history is a school voucher program in Louisiana. Test score effects in multiple studies of that program came back negative. What happened? Regulators piled up unreasonable regulations on the program, and aggressively signaled that more regulations were on the way. And so, unlike every other school choice program in the country, Louisiana’s was unable to attract most private schools to participate. The only schools willing to join the program were the lowest-performing ones, who were looking for any lifeline to keep them alive. Survey research by the program’s evaluators found that regulation was the number-one reason for not participating cited by private-school leaders.[9]

Universal choice also becomes more attractive in the aftermath of the pandemic. Offering a universal choice program would allow every family to find its own educational solution to the crisis. Above, we have noted that Education Savings Accounts are valuable because they provide parents with flexibility, removing the imperative to find a one-size-fits-all solution and allowing different families to approach the pandemic challenge differently. But only the families that are actually eligible for the program will gain access to this flexibility. If some families are arbitrarily excluded from participating, the impossible challenge of finding a one-size solution for their post-pandemic educational needs remains.

Making choice programs universal would also help the programs surmount the political challenge of making policy in a post-pandemic world. It is always the case that social programs with restricted access are divisive; they take tax revenue from all taxpayers and use it to benefit only some of them. But the divisiveness would be much more intense, generating stronger opposition, in programs whose purpose is to cope with the effects of the pandemic. Everyone has been affected by COVID-19. What is the justification for extending educational flexibility to some and not to others in its aftermath?


Oklahoma has the opportunity to adopt a transformative educational reform in the aftermath of the pandemic, but only if it puts first things first. The top priorities for providing a good education are not money or tests or technology, but equality, freedom, justice, and accountability for excellence. The government school monopoly is just as capable of squandering and subverting new money, new tests, or new technologies as it was of squandering and subverting all the money, tests, and technologies we have given it in the past. Putting parents in charge of education through universal Education Savings Accounts is the best way to help schools cope with the challenges of the crisis in a way that will actually deliver the best possible education—and for that reason, it has the best prospects to transform the education system for the better.

—Greg Forster, Ph.D.

Tax Reform

Reducing Oklahoma’s income tax to zero and making up the lost revenue with a broadening of the sales tax and sales tax rate adjustments (including for vehicles) would rapidly increase the state’s GDP by almost 3%. Doing so would also have a positive GDP growth impact of around a quarter percent per year into the future as the incentives to invest, take entrepreneurial risk, and to work improve. Over 10 years’ time, the initial positive impact and increased growth rate would increase Oklahoma’s GDP by more than $13 billion, or more than 100,000 jobs. Immediately fully implementing the tax rates calculated below could result in reduced tax revenue for a few years. However, this could easily be made up with only a portion of the state’s savings.

Positive Economic Impact of Eliminating the Income Tax

The income tax is a penalty on earnings—earnings which result from work effort, investment, and risk taking. Thus, the income tax penalizes the key behaviors necessary for economic growth and directly negatively impacts prosperity. Reducing the income tax in a given jurisdiction is a serious policy move toward long-term economic health and growth. It is also a positive move for a society in general.

Unsurprisingly, econometric studies looking at states in the United States come to various conclusions regarding how income taxes impact economic growth.[10] The various studies of the subject look at different data sets for different levels of government, choosing various control variables. Differences in methodological methods confound the results. Nevertheless, the general consensus is that the income tax has negative economic impacts compared to consumption taxes like the sales tax.

Economists Barry W. Poulson and Jules Gordon Kaplan explored the impact of income taxes across U.S. states and concluded that a decrease in a state’s income tax rate resulted in increased annual GDP growth.[11] That is, the positive impact of decreasing the income tax has compound positive growth effects over time.

Skepticism regarding the positive economic effects of a state having no income tax arises from states not varying that much economically, as well as from the fact that even high-tax states enjoy economic growth. The simple truth is that even a state with poor institutions and governance traditions in the middle of the United States of America is not going to be an obvious economic disaster by any measure—simply because it is in the middle of the United States of America. What’s more, many institutional flaws in, say, California, can be covered up simply by virtue of that state’s natural advantages that make it a desirable place to live, as well as the fact that commerce will inevitably flow through it due to its long coastline and natural harbors. California also enjoys the benefit of a still-rapidly-innovating tech industry that has been able to coexist with poor institutions and the developed in California serendipitously and without intention.

Analogous phenomena explain New York’s economic persistence given its continued dominance as an international center of financial activity. However, recent trends show that not even these states are immune to the consequences poor policy choices can have. Over the last two decades New York and California have lost $129 billion and $82 billion respectively due to wealth migration.[12] This trend accelerated throughout the pandemic as more flexible work schedules and cheaper housing made less dense cities more popular.

With their open borders within the U.S., and federal laws facilitating interstate commerce, it is only with heroic effort that a state might economically distinguish itself, positively or negatively, from the other states. Nonetheless, this is in fact occurring. Texas, Florida, and Arizona serve as contrasts to states like New York and California, with the latter shedding population while the former grow by leaps and bounds. Texas and Florida have no income tax while Arizona’s is modest and its proximity to California makes it an attractive destination for those fleeing the country’s most populous, and perhaps most misgoverned, state.

A recent study published by three international economists looking at changing income and consumption taxes in the United Kingdom concludes that substituting consumption taxes for income taxes is economically expansionary. In fact, they found that a one percent drop in an average income tax rate increases GDP by 0.78 percent. Changes in consumption taxes have no statistically significant impact on GDP, confirming common economic theory that consumption taxes do little to discourage consumption while income taxes have significant negative production effects, which then, in turn, does negatively impact consumption.

Displacing the Income Tax

States depend on only three major taxes for self-funding at both the state and local levels: the income tax, the sales tax, and the property tax. Some have likened this triumvirate of taxes to a three-legged stool where all three major taxes are necessary for a state/local tax system to be maintained. The analogy is obviously flawed when there are very successful states such as Florida, Texas, Tennessee, and Washington that have no income tax. Nevertheless, if one of these major taxes is to be eliminated on a revenue-neutral basis, the lost revenues must be made up with adjustments to one or both of the other major tax sources.

Of the three major taxes used by state/local governments, the most volatile is the income tax, with the corporate income tax being more volatile than the personal income tax. Less volatile than even the personal income tax is the sales tax. Least volatile of all is the property tax. It’s obvious enough why these relative volatilities exist. A hiccup in the economy is immediately reflected in people’s incomes and so are reflected in their income tax liabilities. Sales do not vary as greatly as incomes because some products are simply necessary for people to consume, and people can consume out of their savings as well as by borrowing, smoothing consumption spending over time despite income volatility. Property values are even less volatile relative to economic gyrations, with stability in property values naturally translating into stability in property taxes. Thus, not only does income-tax elimination benefit a state economically, regardless of how difficult it is to measure that beneficial advantage, it benefits government by creating a more stable revenue stream.

For Oklahoma to eliminate its income tax, the state has no choice but to turn to the sales tax unless the electorate agrees to changes to the property tax regime. This is due to constitutional limits on how much property taxes can increase from year to year.

Sales Tax ‘Regressivity’

Whenever sales taxes are mentioned as an alternative to another tax, an almost immediate criticism from some quarters is that the sales tax is “regressive.” This issue knows no ideology. When elected officials consider a simple sales tax increase, conservative voices are as likely to raise the regressivity issue as are left-leaning voices when the sales tax is mentioned as a possible alternative to the income tax.

A tax is defined as regressive when lower-income individuals pay a higher proportion of their income in that tax than higher-income individuals. A tax is progressive when lower-income individuals pay a lower proportion of their income in that tax than higher-income individuals. A proportional tax is one where all incomes pay the same proportion.

Those who are concerned about regressive versus progressive taxes usually look at first-order impacts. That is, they look at the issue as a simple mathematical exercise. Low-income individuals spend more income on consumption necessities; therefore, the sales tax is regressive. High-income individuals are in higher income-tax brackets, therefore the income tax is progressive. But neither of these simple exercises in math take into account how people actually behave throughout an economy in response to taxes.

Responses by the taxed to the incentives inherent in taxes render the simple mathematical view of regressive versus progressive taxation essentially meaningless. Consider, for example, the “luxury tax” passed by Congress over President George H.W. Bush’s veto and then quietly repealed early in President Bill Clinton’s tenure. This tax on furs, yachts, private planes, and jewelry merely caused unemployment as the rich ceased buying, bought elsewhere, or bought used, and the firms making these items laid off workers. A federal study concluded that more was paid in unemployment to these workers than was ever collected in the tax. The people who “paid” for the luxury tax were the workers with modest incomes who produced luxuries, not the rich.

The Poulson and Kaplan study mentioned above included some analysis of the impact of changing regressive taxes versus progressive taxes. Their conclusion was that raising progressive taxes reduced GDP growth rates, whereas lowering progressive taxes increased GDP growth rates. That is, progressive taxation has a negative GDP impact. Regressive tax increases, on the other hand, oddly enough, have a positive GDP impact, certainly where supposedly regressive taxes are substituted for supposedly progressive ones. Odds are, the difference in impacts of “regressive versus progressive” taxation has more to do with the nature of the taxes, with income tax (a highly damaging tax on production) supposedly being progressive while sales tax (a mildly impacting tax on consumption) is generally considered regressive.

The best thing to conclude from realizing that progressive/regressive are meaningless terms and issues, and that taxes are as necessary as government, is that the best approach to taxation is to tax in the least economically damaging way possible. The income tax is highly economically damaging because it literally taxes prosperity-producing activity, resulting in less prosperity. The sales tax is less damaging because it is so difficult to discourage consumption spending. This clear reasoning makes it an easy choice to substitute sales tax for income tax.

But What about Food?

Exempting goods and services from a sales tax is highly distortionary. Nearly anything can serve as a substitute for something else in a human being’s set of consumption choices. Consumption distortions translate into production distortions, which then translate into labor/career-choice distortions, which then translate into less prosperity and less overall human satisfaction with life and careers than could otherwise be achieved.

For decades, there has been talk of how the U.S. economy has shifted from a manufacturing economy to a service economy. Natural forces having to do with technological development and international trade are probably substantially responsible for the change. However, taxation has accelerated and exacerbated the shift in the U.S. economy.

Consider a large, expensive factory. All of the productive equipment and the building itself are subject to property tax. Every worker likely pays income tax in addition to the concern itself, likely a corporation, paying income tax. On top of this, factories feed into the production of final goods, almost all of which are sales taxed. Contrast this to a law firm. Even if incorporated, it pays little or nothing in income tax (though of course, the lawyers do, as do factory workers). As a proportion of its revenues, the cost of property tax on the law firm’s office space and personal property is modest. And, its services are not sales taxed, although legal services might (or might not) be for concerns producing something that is sales taxed at some point. Clearly, taxes are piled on manufacturing in this country while services make off relatively lightly. Taxes favor services over manufacturing, and while both sectors are taxed, the more something is taxed, the less of it there is. It’s no wonder services have taken over the economy and manufacturing has waned in relative importance.

Food, which many want to exempt from sales tax, regardless of party affiliation, is not the only necessity. Housing is a necessity. Clothing is a necessity. Transportation is a necessity. Exempting food from taxation only forces the tax rate charged on other necessities to increase. And yes, food can be substituted in favor of housing.

Studies have shown that, on the whole, those with low incomes suffer obesity at a higher rate than those with high incomes. What’s more, low-income individuals consume fast-food, which is always sales-taxed, at a higher rate than those with higher incomes. Exempting groceries and other items as necessities or for the purposes of reducing “regressivity” only pushes up tax rates for other things and distorts the economy, not for the better, but only for the worse, by getting in the way of accurate price signals that would reflect true preferences and costs.

Nonetheless, in considering an elimination of income tax in Oklahoma, the possibility of exempting food is explored. Another alternative—taxing food and some other necessities at half the prevailing rate—is explored.

Eliminating Oklahoma’s Income Tax

Once it is determined that eliminating the income tax in Oklahoma is desirable, it is then necessary to determine what is required to replace income tax funds with sales tax revenues. It is estimated that a state-only sales tax rate of 11.5% on the current sales tax base would be necessary to raise the revenue to make up for lost income tax revenue. The combined state and local overall average rate would then be 15.55%.[13] This would be four percentage points higher than the current highest combined state/local sales tax rate in the country. Recognizing that this high rate is likely impractical from a political point of view, the three scenarios explored below include broadening the base of the sales tax by eliminating current sales tax exemptions and by broadening the sales tax into some services. They also contemplate increasing Oklahoma’s vehicle sales tax rate. The three scenarios only vary according to how food is treated at both the state and local levels by the sales tax as follows:

  • Scenario 1: Food is taxed at the full new rate,

  • Scenario 2: Food is exempted from the sales tax altogether, and

  • Scenario 3: Food is taxed at half the new rate of other goods and services.

Broadening the Sales Tax

Ideally, a sales tax will only tax final goods and services. Unfortunately, this is a practical impossibility. Many businesses buy pencils that serve as inputs in their production processes. Ideally, pencils used for such purposes would not be sales taxed. But they are sales taxed. That’s because most find it too difficult to separate pencils as inputs and pencils as final goods sold to households. One reason for this difficulty is that sole proprietors would avoid sales taxes en masse by buying many household items through their businesses and then taking them home for use there. It must be understood that the sales tax will never be a perfect consumption tax. Nonetheless, an effort should be made to tax goods and services that are not mostly inputs into a production process so that taxes are not charged on top of taxes.

The Oklahoma Tax Commission publishes a “Tax Expenditure Report” that lists a number of items, mostly tangible goods, that are explicitly exempted from the state’s sales tax. For many of these exemptions, there is no economic justification for the exemption since they are final consumption goods. Some, it can be argued, should not be taxed at the full rate. Thus, in reviewing a broadening of the sales tax into items included in the commission’s report, some would be taxed at half the prevailing sales tax rate. Using the latest report, this broadening of the sales tax base would increase current sales revenues by about 12.5%.

The commission’s expenditure report mostly does not include lost revenue from not taxing services. Again, the goal should be to tax only services provided to final consumers, though such an effort will never result in a perfect system where this goal is fully realized. Using Bureau of Economic Analysis data, it is possible to approximate how much sales tax revenues would increase with a judicious broadening of the sales tax into services, where some services are taxed at half the prevailing rate. It is estimated that such a broadening would increase sales tax revenues by about 15%.

Using the current rate, the broadening of the sales tax base would raise more than $650 million. As great as this number sounds, however, it’s less than one-sixth of the total that will have to be raised under the sales tax in order to eliminate the income tax.

It should be noted that in 2020, the sales tax on food constituted more than 10% of total sales taxes. Eliminating food would therefore require the current rate to increase from 4.5% at the state level to 5%, increasing the sales tax on everything else. This impact only increases if the sales tax on food is eliminated in concert with the elimination of the income tax.

Sales Tax Replacement of Income Tax—Three Scenarios

A revenue-neutral reduction of the income tax to zero, as explained above, will have a positive economic impact. In all likelihood, a large positive initial impact will only be fully felt after a few years have passed. This impact will be significant and sizable, increasing GDP by about 3% on top of current growth. The calculations shown below presume this positive initial impact will have fully “matured.” Immediate implementation of the sales tax policies contemplated in the scenarios below would result in a temporary loss of revenue. However, it is estimated that this would require spending down the state’s savings by only $300 million to $500 million over a few years’ time.

Yearly GDP growth will also increase by as much as a quarter of a percentage point given the continued positive impact of having moved away from a tax on production into a tax on consumption. This increased growth rate could feed on itself to result in even faster growth, depending on migration choices by Americans from other states, since Oklahoma will become an even more attractive destination state. This positive impact is not modeled, but the overall sales tax rate could potentially be reduced further if spending remains disciplined.

In all three scenarios, the income tax is eliminated by:

  1. Broadening the sales tax to tax currently exempt final goods and services, which increases sales tax revenue by about 27 percent,

  2. Increasing the state’s sales tax rate, and

  3. Tripling the vehicle sales tax from the current 1.25% rate to 3.75% as a way to keep the general sales tax rate from rising even higher. (To put this into perspective, Texas’ state sales tax on automobiles is 6.25%.)

In all three scenarios, it is assumed that local rates would be reduced by law so that the sales tax base broadening would result in revenue neutrality for local governments. The current overall average local sales tax rate across the state is 4.05%. Broadening the sales tax base with revenue neutrality will result in a reduction of this average rate. The broader the base, the more this rate falls.

Scenario 1—Food Fully Taxed

  • New State Rate: 8.5%

  • New Average Local Rate: 3.18%

  • New State/Local Combined Rate: 11.68%

Some goods and services not previously sales taxed would be taxed at half the rate at both the state and local levels, or at an overall average rate of 5.84%, far less than the current overall state average of 8.55%.

Scenario 2—Food Fully Exempt

  • New State Rate: 9.35%

  • New Average Local Rate: 3.5%

  • New State/Local Combined Rate: 12.85%

As with Scenario 1, some goods and services not previously sales taxed would be taxed at half the rate at both the state and local levels, or at an overall average rate of 6.43%, still much less than the current overall state average of 8.55%. Food would not be sales taxed at all, but compared to food being sales tax fully, the overall sales tax rate must increase by more than a full percentage point to accommodate not taxing food.

Scenario 3—Food Taxed at Half the Prevailing Rate

  • New State Rate: 8.9%

  • New Average Local Rate: 3.28%

  • New State/Local Combined Rate: 12.18%

As with the other scenarios, some goods and services not previously sales taxed would be taxed at half the rate at both the state and local levels, an overall average rate of 6.09%. Food would also be sales taxed at the lower rate of 6.09% on average so that the sales tax on food would be substantially less than the current statewide average of 8.55%. Compared to food not being taxed at all, the overall sales tax rate is well over one-half of a percentage point lower, resulting in substantial savings on taxes that accrue to other necessities that are fully sales taxed.

Why Ending the Income Tax is Righteous

Whether simple or complicated, an income tax is a tax on prosperity and material progress. That is, the income tax penalizes that which makes malnutrition, starvation, disease, and general misery a whole lot less common. The bedrock on which all of our prosperity is built is human effort—work. Work’s reward is income. Therefore, an income tax is a tax on work with the result that there is less work than otherwise. Less work means less prosperity. Less prosperity means more malnutrition, starvation, disease, and general misery.

No truly just income tax system would tax the gross income of a person in business for himself. Instead, net income is taxed, necessarily allowing for the deduction of legitimate business expenses. This means the government gets to take an intimate look into how one’s business is conducted. Government tax bureaucracies often make arbitrary decisions about what is or is not deductible, creating unnecessary uncertainty and risk in starting and earning from a business. Therefore, the income tax reduces entrepreneurial initiative and innovation.

One of the easiest ways to reduce costs, and gain an edge against competing firms and industries, is to lobby for income tax privileges. The income tax encourages a soft form of corruption wherein lies by omission are constantly told in the halls of Congress and state legislatures all over the country for the sake of easy advantage.

Income tax complexity presents a strong temptation to cheat. The temptation is so great, it’s difficult to blame some of those who engage in it. This impacts not just the individuals who cheat but the entire culture as well. The more widespread even minor tax cheating is, the more acceptable it becomes, which means the government has to clamp down and rigorously enforce the tax law. But very strict income tax enforcement is oppressive, especially given the fact that income-producing activity is not inherently destructive.

To rigorously enforce an income tax on personal, business, and corporate income, the government has to invade the privacy of every income-earning individual in the land. Government gets to know how many children we have, how much we use a vehicle for business purposes, what vendors we use if we own a business, and how we divide the use of our house if we have a home office. If we are audited, the government gets to enter our businesses and homes to look at often intimate details of how we live. Other taxes can be almost as bad, but sales tax is limited mostly to retail businesses. The income tax violates the privacy of everyone, without exception.

The income tax is deceptive in its impact, discourages work effort, encourages corruption, violates our privacy, discourages innovation and investment, and thus increases misery in general. Every income-taxing government, local, state, and federal, should expunge it from their tax codes. A sales tax applied to services and groceries is far less damaging to us all than the income tax, and we should be about the business of eliminating it.

—Byron Schlomach, Ph.D. and Curtis Shelton

Regulatory Reform

As Oklahoma’s political leaders continue to search for ways to fire up economic growth, now is the time to address many of the problems they have been avoiding for years.

In order to make people prosperous, you have to understand the nature of both your economy and the larger society in which it is embedded. While it has taken most of us several decades to catch up to his thinking, it is safe to say that most observers agree that Peter Drucker was right that our society and economy are founded on knowledge. This means that knowledge workers—those with the ability and skills to produce and use knowledge—increasingly are the engine of economic growth and the core of the skilled workforce.[14]

Applying Knowledge to Knowledge

The accelerating economic transformation we have witnessed since the start of the pandemic confirms the centrality of knowledge (or information) in our society and economy. While, for example, traditional bricks-and-mortar retail and entertainment facilities (such as department stores, shopping malls, and movie theaters) precipitously decline, online retail and entertainment streaming services, powered by digital information and technology, thrive. Many office buildings emptied out, while employees increasingly work and collaborate with each other online. Moving work and commerce to the Internet increases social reliance on those knowledge professionals, including information technology specialists and producers of knowledge content, who best can navigate this new landscape.

As Drucker explained many years ago, the knowledge workers who will increasingly dominate our economy, in order to increase productivity and thus raise income and capital, must apply knowledge to knowledge. The development of new technologies can only make us richer if it launches a virtual circle of continuous innovation that produces useful knowledge products at a lower cost. If, for example, we choose to have software do more of our work for us, we will need developers of these products to constantly improve their existing creations and generate new ones in order to increase productivity and foster growth.

Unlike in the industrial era, when one could increase the productivity of workers by simplifying and routinizing tasks and thus maximize efficiency, knowledge workers only produce more when they create more. Their work cannot be reduced to a set of discrete repetitive tasks.

Knowledge work depends on the application of intelligence and imagination to knowledge to produce new knowledge. This new knowledge must, in turn, as it is disseminated, be learned, employed, and improved upon by other knowledge workers, creating a cascade of innovation, the foundation of wealth and progress.

The key to sparking innovation, then, is the mind of the knowledge worker. No one can reason, learn, or create without the freedom to think and imagine. Knowledge workers, it is clear, require autonomy in order to carry out their responsibility to continuously learn and innovate. Freedom, in our society, is not a luxury good that can meaningfully be enjoyed only by a privileged elite—it is a prerequisite for productive effort by most of our new workforce.

The consequences of this new reality for political economy and law are self-evident: if society is to progress, government must not deprive workers of the autonomy necessary to foster continuous learning and innovation. One of the unfortunate aspects of the evolution of society toward the knowledge paradigm is that it has been accompanied by the rapid growth of government, or what Drucker calls the Megastate. As government grows, it seeks to govern less and do more; instead of directing the energies and work of social actors, it seeks to replace them. As government takes on more tasks, its reach exceeds its capacity and it becomes ineffective, degenerating into what Drucker calls the pork barrel state in which the government grants favors to those who will follow its lead.

Rules, Not Standards

What to do? No serious person suggests the solution is the elimination of government. To paraphrase The Federalist, as long as men are not angels, government will be necessary. But as F.A. Hayek demonstrated in The Constitution of Liberty, it is possible to govern in a manner that will secure, and not undermine, the blessings of liberty. The key, Hayek argues, is for government to recognize that because private actors possess superior information about their industry and affairs, society will be better off if these actors, and not the government, carry out the most important social functions. Government, however, should govern—it should lay down the rules informing these actors what the public holds is required or forbidden.

In order for these rules—or what we call regulations—to be effective and just, they must take a certain form. They must provide social actors what they need to use their superior knowledge to produce socially beneficial outcomes. In order to secure the autonomy necessary for social progress, government regulation must be clear, predictable, and stable. Regulations should be based on rules, not amorphous standards.[15] Social actors must be able to plan their affairs knowing that the rules will not change with ephemeral events or passions; they often care less about the substance of the rules than about their certainty and permanence.

These rules must also apply equally to all similarly situated actors—the government cannot play favorites, either by exempting itself from rules it applies to others or by cutting special deals for favored industries or actors. When government chooses sides—the essence of the pork barrel state—it necessarily eviscerates the autonomy of social actors. Instead of doing what they know is best, they must instead dance to the government’s tune, lest their competitors leverage state support and put them at a competitive disadvantage. The public, then, pays twice, both for the cost of the pork-barreling and for the losses caused by less than optimal decisions.

Oklahoma’s Abysmal Regulatory Landscape

The traditional Oklahoma regulatory structure is poorly suited for a modern information society. Indeed, it would be difficult to deliberately design a more dysfunctional system. While it is worth noting that a 2019 study[16] found that the Oklahoma Administrative Code contained 9.3 million words and would take 13 weeks to read, Oklahoma’s problem is not simply the excessive amount of regulation—it is the kind of regulation. For example, a 2017 study examining the licensing of 102 lower-income occupations found that Oklahoma had the 18th most burdensome occupational licensing regime in the nation; another similar study focusing on a narrower range of professions ranked even lower (9th).[17]

Occupational licensing is a particularly harmful form of regulation because, instead of focusing on the prevention or remedy of specific harms, it constructs a barrier to entry into a profession. In other words, it is a complete deprivation of personal autonomy, one that can only be justified by the highest government interests. While, thanks to the Occupational Licensing Advisory Commission formed by the legislature in 2018, improvements have been made, the pace of reform is still too slow.

But the situation is even worse than it appears. Our regulatory landscape must be understood in conjunction with how our government is structured. Many of our licenses and other regulations are administered by a staggering array of more than 200 boards and commissions, many of which are composed of or dominated by incumbent members of the industry these boards are intended to regulate.[18] It surprises no one that these entities impose high barriers of entry or unreasonable regulations on those who seek to enter some aspect of an industry.

It is certain, of course, that these regulators will insist—and probably genuinely believe—that they act only to serve the public good. The problem with so many separate entities, many of which are practically free of gubernatorial or legislative oversight or control, is that their policies or decisions cannot be effectively monitored or evaluated. Consolidation of state agencies, boards, and commissions—and placing the management of the reorganized agencies under direct executive control—is indispensable to instituting regulatory reform. As with occupational licensing, the legislature, by recently giving the executive the power to hire and fire the heads of five important state agencies, has made a good start. Nevertheless, serious administrative consolidation has yet to occur. We cannot afford to wait any longer.

Finally, while many see its governance as a separate issue, it is important to remember that our civil liability system, including workers’ compensation and general legal liability, is a regulatory system, with legal causes of action serving the same function as administrative enforcement. While the legislature for nearly two decades has assiduously attempted to reform the legal system, the Oklahoma Supreme Court has systematically weakened, or even gutted, many of these reforms. The Court will continue to thwart legal reform as long as Oklahoma’s judicial selection system continues to afford the organized bar an inappropriate role in the process. In the meantime, however, the legislature should overturn the most egregious decisions by the Court by moving to amend the state’s constitution in order to insulate present and future reforms.

There are positive legal developments that have emerged out of the legislative response to the coronavirus crisis that may have significant future benefits. During the 2020 legislative session, lawmakers enacted a liability shield for businesses against claims for exposure to the virus. The bill, and others like it around the nation, based this liability shield on compliance with government health guidelines. This approach has great potential as a model for future sensible regulation. Rather than regulations setting vague standards that are enforced only when harm has occurred, opening up social actors to liability based on hindsight analysis, future regulations can set precise rules and practices for industries and then shield industries that follow these rules from any negligence liability. This “safe harbor” approach will both protect the public and provide certain and stable rules for private actors.

Here are some specific regulatory-reform proposals for our state’s political leaders to consider.

Structural Reforms

  • Consolidate agencies, boards, and commissions and place the larger agencies under effective gubernatorial control.

  • Move, alternatively, to “sunset” these entities, so that they will be terminated by a certain date unless reauthorized by the legislature.

Occupational Licensing Reforms

  • Accelerate the pace of licensing review by the Occupational Licensing Advisory Commission and set specific goals for the reduction in the number of required licenses.

  • Allow new residents licensed in other states to transfer their license to Oklahoma as would have been permitted by the Senate version of SB 1891, considered in the 2020 session.

Legal Reforms

  • Amend the state constitution to include a cap on noneconomic damages.

  • Amend Article 5, Section 46 of the state constitution to remove special law restrictions on the passage of laws limiting civil actions.

Future Legislation

  • Use the “safe harbor” model in revision or enactment of regulations.

  • Consider enacting a “regulatory sandbox” law, modeled on Utah’s legislation, which permits new, innovative businesses to apply to a state agency dedicated to providing regulatory relief for regulatory exemptions for a period of time (with the possibility of extension) sufficient for the new business to gain a foothold in the market.

—Andrew Spiropoulos, J.D.


[1] See Greg Forster, “How Much Money Does a Government School Monopoly Need?” OCPA, February 10, 2020.

[2] See Greg Forster, “Do Smaller Classes Help?” OCPA, January 28, 2019.

[3] See Greg Forster, “A Next-Generation School Agenda for Oklahoma,” July 10, 2019; and “Forming Teachers: The Education School Challenge,” OCPA, August 2019.

[4] For an in-depth analysis of the problems with test-based accountability, see Greg Forster, “The Next Accountability,” Introduction and Parts I-V, EdChoice, 2016.

[5] See Nathan Layne and Rajesh Kumar Singh, “New York to Work with Gates Foundation to ‘Reimagine’ Schools: Governor,” Reuters, May 5, 2020.

[6] See Doug Lederman, “Why MOOCs Didn’t Work, in 3 Data Points,” Inside Higher Ed, January 16, 2019.

[7] See “The 123s of School Choice,” EdChoice, April 2020.

[8] See Greg Forster, “The Greenfield School Revolution and School Choice,” EdChoice, 2012.

[9] For discussion of the Louisiana program see Greg Forster, “A Win-Win Solution: The Empirical Evidence on School Choice,” fourth edition, EdChoice, May 18, 2016.

[10] Alex Durante, “Reviewing the Impact of Taxes on Economic Growth,” Tax Foundation, May 21, 2021.

[11] Barry W. Poulson and Jules Gordon Kaplan, “State Income Taxes and Economic Growth,” Cato Journal, Vol. 28, No. 1 (Winter 2008).

[12] How Money Walks, “IRS Tax Migration.”

[13] Sales Tax Clearinghouse

[14] For a distillation of Drucker’s views on society and politics, see Peter F. Drucker, A Functioning Society, Transaction Books, 2003.

[15] F.A. Hayek, The Constitution of Liberty, University of Chicago Press, 1960, p. 153.

[16] James Broughel, “A Snapshot of Oklahoma Regulation in 2019,” Mercatus Center, George Mason University, February 2019.

[17] State Chamber of Oklahoma, “Issue Brief: Occupational Licensing Burdens,” February 21, 2019.

[18] Byron Schlomach, “Baked-In Corruption: The Need to Reform Boards and Commissions,” 1889 Institute, May 2018.

Curtis Shelton Policy Research Fellow

Curtis Shelton

Policy Research Fellow

Curtis Shelton currently serves as a policy research fellow for OCPA with a focus on fiscal policy. Curtis graduated Oklahoma State University in 2016 with a Bachelors of Arts in Finance. Previously, he served as a summer intern at OCPA and spent time as a staff accountant for Sutherland Global Services.

Greg Forster, Ph.D.


Greg Forster (Ph.D., Yale University) is a Friedman Fellow with EdChoice. He has conducted numerous empirical studies on education issues, including school choice, accountability testing, graduation rates, student demographics, and special education. The author of nine books and the co-editor of six books, Dr. Forster has also written numerous articles in peer-reviewed academic journals, as well as in popular publications such as The Washington Post, The Wall Street Journal, and the Chronicle of Higher Education.

Byron Schlomach, Ph.D.


Byron Schlomach (Ph.D. in economics, Texas A&M University) has served as director of the Center for Economic Prosperity at the Goldwater Institute and as chief economist for the Texas Public Policy Foundation. He has also served as scholar-in-residence at the Institute for the Study of Free Enterprise at Oklahoma State University. Write to him at

Andrew C. Spiropoulos

Andrew C. Spiropoulos (M.A., J.D., University of Chicago) is the Robert S. Kerr, Sr. Professor of Constitutional Law at the Oklahoma City University School of Law. He previously served as the Milton Friedman Distinguished Fellow at OCPA.

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