Small: The tax race is on, and Oklahoma’s losing

The tax race is on, and Oklahoma’s losing

By Jonathan Small

Since the 1990s, Oklahoma’s top personal income-tax rate has been cut from 7 percent to 4.75 percent. That’s a good start, but it doesn’t mean Oklahoma is a national leader. In the race to attract entrepreneurs and business capital, we’re in a 50-state race – and Oklahoma is starting to fall behind.

This month, several states cut income-tax rates, often to levels lower than Oklahoma.

In 2024, the citizens of Iowa paid an income-tax rate of up to 5.7 percent. But starting in January, they face only a flat tax rate of 3.8 percent.

Notably, when Iowa Gov. Kim Reynolds was elected in 2018, Iowa’s top income tax rate was 8.98 percent — the sixth highest in the country.

Similarly, this month officials in Louisiana replaced that state’s three income-tax brackets, which ranged up to 4.25 percent, with a flat tax rate of 3 percent. Louisiana also increased the standard deduction by a substantial amount.

In 2022, lawmakers in Mississippi voted to impose a flat-tax rate on income and lower the rate over time. That state’s income tax rate has now been cut from 5 percent to 4.4 percent and is scheduled to decline to 4 percent in 2026.

Beginning in January, citizens in North Carolina saw their state’s income tax fall from 4.5 percent to the current rate of 4.25 percent. And the rate is scheduled to continue declining until it hits 2.49 percent.

This month, citizens in Indiana saw their state’s flat-income tax rate shaved from 3.05 percent to 3 percent.

Oklahoma’s current top rate of 4.75 percent is higher than the rates imposed in several neighboring states, including Texas (which has no personal income tax) and Colorado (4.4 percent). When Arkansas Gov. Sarah Huckabee Sanders took office in 2023, the top individual tax rate in that state was 4.9 percent, but it is now 3.9 percent. Similarly, the top rate in Missouri fell to 4.7 percent starting this month, leapfrogging Oklahoma.

Currently, 14 states now have a flat tax that is, in many cases, lower than Oklahoma’s top rate, and another nine states do not impose an income tax on wages (Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming).

In recent years, several Oklahoma leaders have sought to cut our state income tax and put it on the path to full repeal, but those efforts have run aground. Now, instead of being a national leader, Oklahoma is falling behind. We can’t afford to pretend our tax code remains fully competitive with other states.

For those looking to make major investments, a difference of one percentage point or more in taxation can be the difference between investing in a state or staying on the sidelines. For Oklahoma to attract capital, create jobs and increase opportunity for all, our state must cut and eventually eliminate its penalty on work, the personal income tax.

Jonathan Small serves as president of the Oklahoma Council of Public Affairs.