Tax Cuts' Drain on Revenues Would Stifle Oklahoma's Economic Growth

Editor’s note: This originally ran as an opinion piece in the Oklahoman. We're reproducing it here, with links added for context.

Bills the Oklahoma House has passed to cut corporate and individual taxes wouldn’t boost state economic growth or stimulate new business investment as intended. Even if lower taxes were the economic driver the bills’ authors seem to think they are, the state is already well situated from that perspective, and it’s likelier the bills’ drain on revenues would harm Oklahoma’s schools, services, and workforce quality and thereby discourage investment.

House Bill 3849 would change how multistate corporations are taxed and let some of them escape all state taxation on some of their profits, HB 3131 would immediately repeal the business franchise tax, and HB 3350 — the costliest of the three — would cut personal income tax rates by one-quarter point in each bracket. Combined they would cost more than $300 million in annual revenue.

Public services that are vital to supporting businesses and the state’s economy can ill afford that revenue hit. When it comes to offering a skilled and healthy workforce, Oklahoma is already at a serious disadvantage: it ranks 39^th among states in the share of adults in the labor force and 45^th in the share with a bachelor’s degree. It’s fourth from the bottom in the share of its high school seniors doing college-level work. Its workforce faces serious health impediments to productivity as well; it’s in the top ten states in the incidence of diabetes, hypertension, and heart disease.

A skilled workforce routinely ranks above business tax levels and tax breaks among the factors executives cite as driving corporate location decisions. Nearly a third of entrepreneurs cite access to talent as a factor governing where to launch their company, compared to only 5 percent citing low tax rates, a 2014 survey found. It’s little wonder, then, that when the State Chamber surveyed its members about the issues they wanted the legislature to focus on in 2022, “Businesses overwhelmingly chose workforce development over reforming the state’s tax structure.”

If one were to base the state’s investment appeal on taxes owed by would-be Oklahoma businesses and entrepreneurs, the state already rates highly. A 2021 Tax Foundation study found that five of eight representative business types (for example, a corporate headquarters) would face a lower effective tax rate — that is, its total state and local taxes as a share of pretax profits — by locating in Oklahoma than in all its neighboring states. Texas and Colorado would impose substantially higher taxes on all eight. Oklahoma’s top income tax rate is already lower than that of 29 other states. Per-person total state and local tax collections are lower in Oklahoma than in all its bordering states.

The Oklahoma Senate should reject the three House bills. If it doesn’t, the supermajority requirementsof State Question 640 would make replacing this crucial revenue exceedingly difficult. These tax cuts would seriously impair the state’s long-term ability to fund the kinds of investments — good schools, high quality roads, and general quality of life — that would make it a place where people want to raise families, start businesses, and create jobs.

Emma Morris is the Health Care and Revenue Policy Analyst for the Oklahoma Policy Institute.