State Budgets

State of the State: Oklahoma

Oklahoma Governor Mary Fallin proposed what may end up being the nation’s largest tax and spending hike

Oklahoma Governor Mary Fallin proposed what may end up being the nation’s largest tax and spending hike (in percentage terms) during her seventh annual State of the State Address. Under her plan, spending will rocket by one billion dollars, from $6.78 billion in fiscal year 2017 to $7.79 billion in fiscal year 2018. This whopping 14.9 percent increase is accompanied by a net hike in taxes and fees of approximately $950 million.

The so-called modernization of the sales tax comprises the biggest component of the massive tax hikes. Applying the tax to services in addition to goods brings in nearly $840 million while eliminating the sales tax on groceries saves taxpayers nearly $235 million. On net, this sales tax shift represents a $605 million increase. Shoppers may enjoy purchasing milk and eggs without a forced donation to the government, but this is of little solace with the new sales tax likely to apply to dry cleaning, haircuts, legal advice, plumbers and vehicle repairs. Oklahoma taxpayers already endure the 14th worst sales tax burden. Now, a family of four could be saddled with an additional $616 per year just in sales taxes.

But wait—there’s more!

A trip to the gas station and mini-mart looks to become much more expensive. The governor’s budget seeks to increase the gas tax and diesel tax, equating to $219.7 million in new taxes. Additionally, she aims to more than double the cigarette tax from $1.03 per pack to $2.53 per pack, tallying up to $257.8 million in new taxes.

Other less significant revenue expanders include an increase in the excise tax rate for commercial trucks and truck-tractors from $10 to $100 and increasing the reinstatement fee for suspended corporations from $15 to $150.

Calls by the governor to eliminate the corporate income tax (saving $140.2 million) should be commended as that reform would certainly help Oklahoma compete. Likewise, her proposal to accelerate the sunset of the wind production/zero emission tax credits enhances the neutrality of the tax code. This favoritism could funnel $840 million to government selected producers from taxpayer pockets over the next 15 years. Unfortunately, these positive steps were dwarfed by the slew of tax increases elsewhere.

“Government in and of itself does not create jobs, but it should provide the right environment to grow the economy through a free-market system, unfettered by burdensome regulation,” proclaimed the governor. Oklahoma’s economic outlook ranked 10th nationally according to the ALEC report Rich States, Poor States-. This comparative advantage will erode as the tax burden grows.

Perhaps more focus should be given to lightening the footprint of the state government. Of course, the past streamlining should be applauded. According to the Kaiser Family Foundation, the state of Oklahoma spent more per capita in fiscal year 2015 than 21 other states. In fact, for every $1 per capita spent by Texas, Oklahoma spent $1.31. Incidentally, Texas ranked first place in economic performance in the most recent Rich States, Poor States.

Oklahoma’s economic outlook remains bright, despite the recent localized recession as the oil boom crashed to a halt. Rather than enacting these permanent tax increases, a continuation of temporary budget constraints more adequately will preserve the Sooner State’s economic competitiveness.

In Depth: State Budgets

Smart budgeting is vital to a state’s financial health. The ALEC State Budget Reform Toolkit offers more than 20 policy ideas for addressing today’s shortfalls in a forthright manner, without resorting to budget gimmicks or damaging tax increases. One way to stabilize budgets over time is to embrace…

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