In Fiscal Year (FY) 2016, Oklahoma collected $13.7 billion in state and local taxes—or $3,495 for every man, woman, and child. 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?
To better answer this question, this analysis will calculate Oklahoma’s tax burden relative to the private sector. Ultimately, it is the private sector that creates new wealth and income. A high tax burden means a state is hobbling its private sector relative to other states and reducing their long-run economic growth potential.
Fortunately for taxpayers, as shown in Chart 1, Oklahoma’s state and local tax burden (tax collections divided by private sector personal income) was the eighth lowest in the nation for FY 2016 at 11.9 percent—or -16 percent below the national average of 14.3 percent.
#Oklahoma state and local #taxburden in FY 2016 was the 8th lowest in the nation at 11.9%— -16% below US average of 14.3% http://bit.ly/2FX9C8F @keypolicydata #OKpol #OKleg #OKsen #OKgov #PolicyData (click to tweet)
As shown in Chart 2, Oklahoma’s tax burden has increased over time by 7 percent to 11.9 percent in FY 2016 from 11.1 percent in FY 1950.
To put Oklahoma’s tax burden into perspective, let’s compare it to size of major industries in the state (as a percent of private sector income). As shown in Chart 3, Oklahoma’s 11.9 percent tax burden is greater than these combined industries: manufacturing (8.4 percent), utilities (1.4 percent), educational services (0.8 percent), and arts, entertainment, and recreations (0.6 percent).
#Oklahoma state and local #taxburden > combined industries: manufacturing, utilities, educational services, and art/entertainment http://bit.ly/2FX9C8F @keypolicydata #OKpol #OKleg #OKsen #OKgov #PolicyData (click to tweet)
Between FY 1950 and 2016, Oklahoma’s tax burden has essentially flat lined. Consider that Oklahoma’s tax burden peaked at 15.1 percent in FY 1995. Over the next two decades, Oklahoma’s tax burden declined by -21 percent. There are two major reasons for Oklahoma’s low overall tax burden and the recent downward trajectory.
First, Oklahoma’s state and local property tax burden is only 2.4 percent—this is the 2nd lowest in the country. However, the property tax burden was not always this low as it was as high as 4.7 percent in FY 1967. As such, the property tax burden has been cut by more than half.
Second, Oklahoma’s individual income tax burden has been on a downward trajectory since peaking at 3.8 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.
As of January 1, 2018, Oklahoma’s top individual income tax rate is 5 percent.
However, mitigating the good news of lower property and individual income taxes has been a growing sales tax burden. Between FY 1950 and FY 2016, Oklahoma’s sales tax burden has grown by a whopping 117 percent to 4 percent from 1.9 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, as of July 1, 2017, the Tax Foundation found that the combined state and local tax rate is 8.86 percent which is the 6th 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 in 2001. 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 20 Oklahoma counties with the highest local government tax burden include:
The 20 Oklahoma counties with the lowest local government tax burden include:
Finally, don’t forget to watch our exclusive time-lapse video of state and local tax burdens over the last 66 years! See if your state has been above or below the national average?
Scott has nearly 20 years of experience as a public policy economist. He is the author, co-author and editor of over 180 studies and books. His professional experience also includes positions at the American Conservative Union Foundation, Granite Institute, Federalism In Action, Maine Heritage Policy Center, Tax Foundation, and Heritage Foundation.