The Cost of Tax Cuts in Oklahoma

Repeated cuts to the state income tax made since the mid-2000s are one of the most significant reasons for an ongoing financial crisis that is eroding important public services and threatening Oklahoma’s economic well-being.

Acute teacher shortages, college tuition and fee hikes, critically understaffed correctional facilities, longer waiting lists for services, and lower reimbursement rates for medical and social service providers are among the harmful consequences of chronic budget shortfalls.

Beginning with the Great Recession that reached Oklahoma in 2009, the state has experienced a continuing budget crisis. Even after the economy recovered from a severe national recession, Oklahoma’s funding for core services remains well below pre-recession levels. Many state agencies still operate with one-quarter to one-third less state support compared to fiscal year 2009. Overall, this year’s state appropriated budget is $896 million, or 11.4 percent, below that of 2009 once adjusted for inflation.

Numerous factors contribute to the growing gap between the cost of maintaining core services and the revenue Oklahoma collects to pay for them. These include erosion of the tax base through the growth of online commerce and the shift to a service-based economy, the ballooning number and cost of tax incentives, and an increasing share of tax dollars that are allocated off-the-top for specified purposes, leaving less revenue for general appropriations.2 While these other factors contribute to budget shortfalls, the series of cuts to the state income tax that have reached an annual cost of more than $1 billion in lost revenue cannot be overstated as a cause.