Budget & Tax
J. Scott Moody & Wendy Warcholik, Ph.D. | May 1, 2009
A Look Back at Oklahoma's Tax Burden
J. Scott Moody & Wendy Warcholik, Ph.D.
The chart below shows the composition of Oklahoma's state and local tax burden, as a percent of personal income, from fiscal year (FY) 1950 to 2008.
Oklahoma's overall tax burden has remained stable over the last 58 years, growing by only 5.9 percent to 9.38 percent in FY 2008 from 8.86 percent in FY 1950. This is in stark contrast to the national average, which has soared by 50.2 percent to 11.05 percent in FY 2008 from 7.36 percent in FY 1950.
However, the trend in the state's overall tax burden masks several underlying trends in the composition of that tax burden.
In FY 1950, selective sales taxes-more commonly known as excise taxes, levied on products such as alcohol, amusements, motor fuels, and tobacco products-were the largest segment of taxes paid by Oklahomans. But since FY 1950 the selective sales tax burden has plummeted 66.1 percent to 0.84 percent.
Another tax that has contracted is local property taxes, falling 37.2 percent to 1.51 percent in FY 2008 from 2.4 percent in FY 1950. The tax burden of licenses-such as corporate, hunting and fishing, motor vehicles, etc.-has also fallen.
On the other hand, several taxes have significantly expanded. The tax with the largest expansion is the state individual income tax, whose burden grew a whopping 637 percent to 2.14 percent in FY 2008 from a mere 0.29 percent in FY 1950.
Another fast-growing tax is the sales tax. Unlike the individual income tax, the sales tax is levied at both the state and local levels. The sales tax burden grew 86.5 percent to 2.75 percent in FY 2008 from 1.47 percent in FY 1950.
Overall, at the state level, the tax burden has moved away from selective sales taxes and toward individual income taxes. At the same time, at the local level, the tax burden has moved away from the property tax and toward the sales tax.
One reason for the dramatic growth in the individual income tax is the steeply graduated rate structure that quickly throws taxpayers into the highest marginal tax rate. As a result, income tax revenue systematically grows faster than income, especially when the nominal bracket amounts are eroded by inflation.
As OCPA suggested in a January 2008 study (Oklahoma: A Tax and Budget Assessment), policy-makers should reform the individual income tax code by broadening the base, eliminating unnecessary exemptions and credits, and instituting a low, flat rate.
Scott Moody (M.A., George Mason University) and Wendy Warcholik (Ph.D., George Mason University) are OCPA research fellows.
J. Scott Moody
OCPA Research Fellow
OCPA research fellow J. Scott Moody (M.A., George Mason University) serves as chief executive officer of State Budget Solutions. Formerly a senior economist at the Tax Foundation and a senior economist at the Heritage Foundation, he has twice testified before the Ways and Means Committee of the U.S. House of Representatives. Moody is the co-creator of the Tax Foundation’s popular “State Business Tax Climate Index.” His work has appeared in Forbes, CNN Money, State Tax Notes, The Oklahoman, and several other publications. This article is an updated version of an analysis published in 2008.
Wendy Warcholik, Ph.D.
OCPA Research Fellow
Wendy P. Warcholik (Ph.D., George Mason University) is an OCPA research fellow. She formerly served as an economist at the U.S. Department of Commerce’s Bureau of Economic Analysis, and was the chief forecasting economist for the Commonwealth of Virginia’s Department of Medical Assistance Services. She is a co-creator (with J. Scott Moody) of the Tax Foundation’s popular “State Business Tax Climate Index.”