In Fiscal Year (FY) 2013, Oklahoma collected $13.4 billion in state and local taxes. While this is an impressive sum of money, it tells us little about whether or not the average Oklahoma taxpayer can afford this level of taxation.
As shown in Chart 1, Oklahoma’s state and local tax burden (tax collections divided by personal income) was the 6th lowest in the nation for FY 2013 at 8.4 percent—or 18 percent below the national average of 10.3 percent.
More impressively, Oklahoma is one of a handful of states where the tax burden has declined over time. As shown in Chart 2, Oklahoma’s tax burden fell by -3 percent to 8.4 percent in FY 2013 from 8.7 percent in FY 1950. However, this understates the degree of decline because Oklahoma’s tax burden peaked at 10.3 percent in FY 1997. Over the next sixteen years, Oklahoma’s tax burden declined by -18.6 percent.
There are two major reasons for Oklahoma’s low tax burden. First, Oklahoma’s state and local property tax burden is only 1.5 percent—this is the lowest in the country. However, the property tax burden was not always this low as it was as high as 3.3 percent in FY 1967. As such, the property tax burden has been cut in half.
Second, Oklahoma’s individual income tax burden has been on a downward trajectory since peaking at 2.7 percent in FY 1999. The primary reason for this decline has been a series of legislative tax changes that have cut marginal tax rates. According to a recent article from the Oklahoma Council of Public Affairs:
From 2004 through 2009, Oklahoma’s personal income tax—the amount the state penalizes citizens and job creators for the right to earn a living—was lowered more than 20 percent. Over this period of time, the top marginal rate dropped, in a series of four reductions, from 7.00 percent to 5.50 percent.
With each drop in the rate, many individuals and organizations in favor of higher government spending worked against the income tax cuts. They claimed income tax cuts would result in less revenue for state government programs. Even the Oklahoma Tax Commission estimated, with each new income tax cut, that the state would see a loss in revenue.
What actually transpired was that Oklahoma saw an increase, both in economic activity and tax revenues, with each of the income tax cuts implemented between 2004 and 2009.
However, mitigating the good news of lower property and individual income taxes has been a growing sales tax burden. Between FY 1950 and FY 2013, Oklahoma’s sales tax burden has grown by a whopping 94 percent to 2.8 percent from 1.5 percent and is the 16th highest in the country.
The reason for Oklahoma’s high sales tax burden is because in addition to a state sales tax there are also local option sales taxes leading to high combined state and local statutory tax rates. In fact, the Tax Foundation found that the combined state and local tax rate is 8.72 percent which is the 5th highest in the country.
Of course, the local option sales tax is likely responsible for keeping the property tax burden so low. As such, the dynamic between the property tax and the local option sales tax is more akin to a slow-moving shifting of the tax burden from one tax to another—though imperfectly as the increase in the sales tax burden exceeds the decrease in the property tax burden.
Overall, Oklahoma has significantly boosted its economic competitiveness by not only reducing the tax burden over the last decade, but also by recently enacting right-to-work. As a result, Oklahoma has experienced a recent surge of in-migration as taxpayers “vote with their feet” in favor of these policy changes. Put simply, taxes matter!
Of course, the tax burdens for local government can vary just as much as they do among the 50 states. As such, we have also calculated the local government tax burden for every county in Oklahoma—this includes every taxing jurisdiction within the geographic county borders whether it is a city, a special district, or county government itself.
The Oklahoma counties with the highest local government tax burden include: Dewey County, OK (8.9 percent), Pittsburg County, OK (4.8 percent), and Coal County, OK (4.8 percent). The Oklahoma counties with the lowest local government tax burden include: Logan County, OK (1 percent), Osage County, OK (1 percent), and Cotton County, OK (1.3 percent).
J. Scott Moody has nearly 20 years experience as a public policy economist with a specialty in tax policy and has over 180 publications. He has worked for numerous national and state-based think tanks such as the American Conservative Union Foundation, Federalism In Action, Tax Foundation, Heritage Foundation, and The Maine Heritage Policy Center.