In recent weeks, in interviews with both local media and national outlets, Gov. Kevin Stitt has called for Oklahoma to phase out the personal income tax to boost the state’s economy.
“I’ve already cut taxes once and I’m trying to get another, deeper tax cut and really get us on the path to zero income tax,” Stitt said in a radio interview with KKAJ in Texoma. “We are currently at 4.75 percent. Texas is at zero. And I want us to lower our taxes, because when is the best time to do that?”
Stitt noted that the state has record savings and a growing economy, making it much easier to reduce the tax burden now. He emphasized these points in a separate interview with Stuart Varney on FOX Business Network.
“We’ve created the largest savings account in the history of our state in Oklahoma since I’ve been governor,” Stitt said. “We have a budget surplus, so now is the time to give it back to the people.”
Earlier this summer, Stitt’s office announced that the state government is poised to have a combined savings of $4.82 billion in the state’s Constitutional Reserve Fund, the Revenue Stabilization Fund, the Federal Medicare Rate Preservation Fund (FMAP), unspent reserves from previous years and projected additional deposits in two of these funds.
Stitt noted that government spending could be strategically increased in key areas while cutting the income tax rate, using growth revenue for both, and proposed that the income tax rate be cut “a quarter of a point at a time “.
“Over the next decade, you can put your fortune on a path to zero,” Stitt said. “That’s what I’m trying to do through the legislature.”
Internal migration fueled Oklahoma’s population growth during Stitt’s administration as people moved into Oklahoma from other states. Much of this migration comes from countries that impose higher taxes.
However, the website How Money Walks, which uses IRS data to determine how much income people bring with them when they move to a state or take with them when they leave, shows that Oklahoma continues to lose wealth is primarily in favor of Texas and Florida, two states that do not impose personal income tax.
The loss of these typically higher-income earners remains an economic tailwind for Oklahoma.
The ability to offset income tax cuts with growth revenue has long been noted as a viable strategy for phasing out Oklahoma’s personal income tax.
In July 2004, economist Stephen Moore noted that from 1993 to 2003, the state of Oklahoma raised more than $3.8 billion in total that decade in excess of the amount needed to maintain 1993 spending levels. , even after adjusting costs for population growth and inflation.
The strategy used to build up government savings shows how spending restraint can also be used to cut taxes. Nearly $5 billion in government savings was produced primarily by keeping spending below what politicians are legally authorized to spend.
This practice has not led to layoffs in other areas. In fact, state spending on K-12 education boomed even as overall spending was held back as state savings were increased and the personal income tax rate was cut from 5 percent to 4.75 percent.
From 2019 through the current state budget year 2024, an additional $1.37 billion is dedicated to K-12 education. This is a larger increase than what happened in the previous 25 years. From 1993 to 2018, government spending on education increased by $1.35 billion.
Now that government savings have built up to enough levels to weather even a major economic recession without cuts in key areas of government, Stitt said policymakers can shift focus and use the same strategy to lower the personal income tax , until it is completely removed.
“We want to get rid of the income tax, reset it,” Stitt said. “We want to be the most business-friendly state in the country.”