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Tax Cuts put Oklahoma on a better path

Jonathan Small

The “How Money” talks website shows that Oklahoma lost $1.79 billion in adjusted annual gross income from 1992 to 2018, with many earners fleeing to states that have no income tax. This year, lawmakers took an important step to reduce or reverse that outflow by cutting the state penalty on work—Oklahoma’s income tax.

Thanks to the outcome of this year’s legislative session, Oklahoma’s top income tax rate is poised to fall from 5 percent to 4.75 percent. That will still be far higher than the zero-percent rate in nine states that don’t tax wages at all, but it is also much better than the rates in most other states. Only a handful of states that impose an income tax will have a lower rate than Oklahoma.

In our region, Oklahoma will trail only Texas, which has no income tax, and Colorado, which has a 4.63 percent rate. How Money Talks link here.

The ideal situation would involve full elimination of Oklahoma’s income tax, but cutting the rate is a step in the right direction.

Investment goes where it is wanted. The presence of an income tax is a strong deterrent to job creators, and the higher the rate the greater the deterrent. That’s why the nine states that impose no income tax on wages experienced a net increase in income from 1992 to 2018, according to How Money Walks.

The decision to cut taxes was also bolstered by lawmakers’ decision to simultaneously boost state savings. They set aside another $800 million, bringing state savings above $1 billion. That will allow the state government to better handle future downturns without tax increases and it also restrains the growth of government. In the past, politicians’ willingness to grow government ultimately harmed private-sector investment because taxes were raised to keep pace with spending, rather than keeping spending in line with tax collections.

Some argued Oklahoma should provide tax credits that reduce income-tax liability for most Oklahomans, rather than tax cuts, because under Oklahoma’s Constitution tax credits can be repealed with a simple majority vote while tax rates require a three-fourth supermajority to increase.

But that reality means tax credits will be seen as temporary by entrepreneurs, reducing their appeal for those seeking to make long-term investments in Oklahoma. Cutting rates sent a message: Oklahoma is open for business, wants you to invest here, and wants you for the long haul.

People have been voting with their feet for decades by moving to states that do not penalize work. Now, Oklahoma may become a destination, rather than a departure point, for more of those people.

NOTE: Jonathan Small’s commentaries and analyses appear often on The City Sentinel website, and in the print edition. This article first appeared at the website of the Oklahoma Council of Public Affairs (OCPA). Small’s commentary is reposted here, with permission.