By Jonathan Small
Special to The Sun
In the past decade Oklahoma is performing well and beating the national average. It’s no coincidence that over this same period Oklahoma implemented a number of pro-growth policies including right-to-work, eliminated death taxes and cut the top personal income tax rate by 25 percent while increasing the standard deduction and adding a child tax credit for many Oklahomans.
Oklahoma’s Office of Management and Enterprise Services is responsible for preparing the state’s Comprehensive Financial Report (CAFR). The FY-2011 and FY-2013 CAFRs reveal personal income tax cuts in Oklahoma have benefited state government and taxpayers from 2004 to 2011 (latest available data). Over this period the number of tax filers with adjusted gross income (AGI) more than $50,000 has increased by 152,029 or 39 percent. These filers paid 76 percent of total personal income taxes in 2004 but paid 84 percent in 2011. Tax filers with AGI of $25,000 or less paid 6 percent of total personal income taxes in 2004 but paid 3 percent in 2011. Total personal income tax liability for these filers declined 55 percent from $167 million in 2004 to $75 million in 2011.
Even though there were more filers in 2011 than in 2004 with AGI of $25,001 to $50,000, those filers paid $133 million less in personal income tax.
Tax cuts didn’t just help taxpayers. State government officials regularly report that Oklahoma total net state tax collections are at all-time highs. Total net state personal income tax collections set a record the past two years and are on pace for a record for FY-2014. State sales tax collections soared in the past decade. Net state sales tax collections were $1.4 billion in FY-2003. In FY-2013, the most recent fiscal year, net state sales tax collections were $2.2 billion, an increase of $871 million — or 62 percent in just 10 years. Inflation during this same period was 27 percent, state population growth was 9 percent and state personal income growth 39 percent. Total net state sales tax collections set a record the past two years and are on pace for a record for FY-2014.
Oklahoma’s total state spending is on pace for another record high and set a record high every year for at least the past decade, according to the CAFR. Available revenues for common education are at all-time highs, according to the Oklahoma State Department of Education with local revenues surging more than $300 million from FY-2008 to FY-2013. Some deny the reality of a dynamic economy and argue personal income tax cuts cannot be credited for any amount of growth in other revenue sources. But it is undeniable that the predictions that personal income tax cuts would lead to doom, gloom, despair, decimation of government services and sharp declines in government revenue have proven false.
Research and human action demonstrates that taxes on productivity are the most damaging. The personal income tax is a direct penalty on work, entrepreneurship and job creation. Oklahoma has made significant strides in the past decade but cannot afford to be complacent. It’s just a fact that the states with no personal income tax outperform the nine highest taxed states, the national average for states and even Oklahoma.
According to the U.S. Census Bureau, from 1992 to 2011 Oklahoma lost nearly $1 billion in AGI as a result of Oklahomans choosing to relocate to other states. It’s no coincidence that during that period of time Oklahoma lost $1.3 billion to Texas and $296.9 million to Florida, both no income tax states. Oklahoma now is in the income tax sandwich that Gov. Mary Fallin feared. Of the six states surrounding Oklahoma, four penalize work less than Oklahoma, completely surrounding Oklahoma’s north, south and west borders.
To be sure, more must be done to unleash human potential in Oklahoma. Oklahoma must implement strong K-12 school choice alternatives, expand and embrace the national free market health care movement taking place in Oklahoma and desperately needs corrections reform. But achieving Gov. Fallin’s goal of phasing out Oklahoma’s personal income tax is the No. 1 economic policy change with the best opportunity to expand economic opportunity for the majority of Oklahomans. It’s time to phase out Oklahoma’s personal income tax.
JONATHAN SMALL, a certified public accountant, is vice president for policy at the Oklahoma Council of Public Affairs (www.ocpathink.org), a free-market think tank. Jonathan, his wife Kristina and their four daughters live in Edmond.