Skip to content

Oklahoma Considering Income Tax Changes to Address Budget Shortfall

2 min readBy: Erica York

A new proposal in the state of Oklahoma would increase state income taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. collections by $175.7 million. The income tax changes are part of a larger package of proposed tax increases to cover the state’s estimated $100 million budget shortfall, increase pay for educators, and fund other expenditures. The proposal would make several changes to the structure of Oklahoma’s personal income tax, resulting in some families seeing tax cuts and others seeing tax increases.

Summary of Personal Income Tax Proposal

Itemized Deductions
Capped at $22,500
No cap on charitable contributions
Additional Tax Brackets (Retains top 5% bracket)
4.6% $7,200-$17,999 (single filer)
$12,200-$35,999 (married filing jointly/head of household)
4.8% $18,000-$49,999 (single filer)
$36,000-$99,000 (married filing jointly/head of household)
Three-Tiered Nonrefundable Credit (Based on Adjusted Gross Income)
AGI less than $16,000 $70.00 credit
AGI less than $32,000 $65.00 credit
AGI less than $52,000 $50.00 credit
Other Changes

Standard deduction

Reduces standard deduction amounts

Personal exemption

Disallows personal exemption

While the two lower intermediate brackets would reduce tax liability, they would also add more complexity and progressivity to the state’s income tax structure. If adopted, this proposal would give Oklahoma eight income tax brackets as opposed to its current six brackets. The nonrefundable, per return credit would also reduce tax liability for families within the income ranges outlined above.

The remaining components of the proposal would result in tax increases, as they subject more income to taxation. Capping itemized deductions would likely increase tax liability for higher income earners, as high-income earners tend to itemize rather than take the standard deductionThe standard deduction reduces a taxpayer’s taxable income by a set amount determined by the government. It was nearly doubled for all classes of filers by the 2017 Tax Cuts and Jobs Act (TCJA) as an incentive for taxpayers not to itemize deductions when filing their federal income taxes. . Reducing the standard deduction, then, would primarily affect lower income earners and likely lead to more households having income subject to the tax. Disallowing the personal exemption would likewise make more income subject to the tax.

Altogether, the proposal is estimated to increase tax liability for 45 percent of filers, to the tune of $175.7 million in new revenue. Households with AGI of $70,000 and higher would account for more than 75 percent of the increase.

These proposed changes make the tax structure more complex and progressive, not simpler or more neutral. Oklahoma has an opportunity at true tax reform that broadens bases and lowers rates to make the state more competitive. This plan falls short of that ideal.