A new study released today by the Institute on Taxation and Economic Policy (ITEP) and Oklahoma Policy Institute finds that low and middle-income Oklahomans pay over two times more in taxes as a percentage of their income compared to the state’s wealthiest residents.
The study, “Who Pays?”, analyzes tax systems in all 50 states and factors in all major state and local taxes, including personal and corporate income taxes, property taxes, sales and other excise taxes.
“When you look at all of Oklahoma’s state and local taxes, it’s clear that the system is unfair. The less you make, the higher percentage you pay,” said Gene Perry, Policy Director for Oklahoma Policy Institute.
In Oklahoma, the bottom 80 percent of taxpayers (households earning less than $89,000 a year) are paying between 8.6 percent and 10.5 percent of their incomes in state and local taxes. At the same time, the wealthiest 1 percent of households (those making above $418,000) pay just 4.3 percent.
Oklahoma’s tax system is regressive because families with lower incomes pay a larger percentage of those incomes in state and local taxes. This is in part because Oklahoma is one of very few states that does not exempt groceries from sales tax and does not index income tax brackets to inflation.
The report also projects how Oklahomans’ overall taxes will change if all scheduled cuts to the top income tax rate go into effect. If the top rate drops from the current 5.25 percent to 4.85 percent, households in the bottom 40 percent of income brackets will see no change in their taxes, even though they currently pay the highest state and local tax rates overall. Taxes for the wealthiest 1 percent of households will fall to 4.1 percent of income.
“The legislature and governor keep pushing tax cuts for top earners, but they haven’t done a thing for the Oklahomans who most need a break,” Perry said. “Meanwhile, many of these same low- and middle-income families have felt the worst effects of Oklahoma’s cuts to education and health care.”
There’s also a more practical reason for Oklahoma and all states to be concerned about regressive tax structures, according to ITEP. If the nation fails to address its growing income inequality problem, states will have difficulty raising the revenue they need over time. The more income that goes to the wealthy (and the lower a state’s tax rate on the wealthy), the slower a state’s revenue grows over time.
“In recent years, multiple studies have revealed the growing chasm between the wealthy and everyone else,” said Matt Gardner, executive director of ITEP. “Upside down state tax systems didn’t cause the growing income divide, but they certainly exacerbate the problem. State policymakers shouldn’t wring their hands or ignore the problem. They should thoroughly explore and enact tax reform policies that will make their tax systems fairer.”