Oklahoma

State

Senate

Quarterly

Monitor

Oklahoma Senate Staff

February 1998

Analyzing Oklahoma's State and Local Taxation: Different Approaches

Taxation is already a highly visible policy topic for the 1998 Oklahoma Legislature. Discussions of taxation can occur according to a number of different frame-works, including:

I. A TOOL FOR ECONOMIC DEVELOPMENT -- Does a tax system encourage (or at least not discourage) private investment, and firm location or expansion?

II. FUNDING OF GOVERNMENT OPERATIONS -- Is a particular tax system balanced among types of taxes, and between state and local government?

III. EQUITY TO TAXPAYERS -- Does a tax system treat taxpayers fairly according to their ability to pay?

Recently, several reports have attempted to analyze one or more aspects of taxation as they relate specifically to Oklahoma. The sidebar, right column, summarizes the findings of modeling and analysis conducted by the Washington, D. C.-based Tax Foundation.

In addition, a recent report by the Economic and Fiscal Affairs Program of the National Conference of State Legislatures (NCSL) addresses these issues as they relate to Oklahoma's state and local tax sys-tem. The re-port was presented to the Joint Task Force on Tax Struc-ture in December 1997. Some of the major findings of NCSL's report follow:

I. Economic Competitiveness

• Oklahoma is a low-tax state by national standards (see graphs, top of page 2):
  
  - 42nd in per capita tax burden;
  - 37th in taxes on a percent of personal income basis.
  
  
• Oklahoma taxes are not high by regional standards:
  
  - 6th among 8 neighboring states on per capita basis;
  - 3rd among 8 neighboring states on a percent of per-sonal income basis.

II. Tax Balance

Oklahoma has a generally balanced system of taxation in terms of the mix of taxes, but has a "centralized" tax system by which state government collects the majority of state and local tax revenues.

Tax Foundation Finds Oklahoma 45th in 1997 Total State and Local Tax Burden Per Capita Per $1,000 Income St. & Loc. Taxes Rank St. & Loc. Taxes Rank US Region $3,078 $2,558 - - $118 $111 - - Colorado $3,184 (13) $115 (23) Kansas $3,038 (17) $124 (10) Missouri $2,747 (26) $112 (31) Texas $2,580 (33) $107 (39) New Mexico $2,365 (40) $115 (25) Arkansas $2,257 (42) $109 (35) Oklahoma $2,206 (45) $106 (41) Louisiana $2,090 (49) $98 (46) Ranked either by "per capita" or "per $1,000 of per-sonal income", Oklahoma places near the bottom, supporting NCSL's conclusion that Oklahoma is a "low-tax state by national standards" (see lead article). Tax Foundation estimates are based on historical data, definitions, and methods gathered and developed by the U. S. Bureau of Economic Analysis and the U. S. Census Bureau. The Tax Foundation is a nonprofit, nonpartisan policy research organization that monitors fiscal issues at the federal, state, and local levels.

• While Oklahoma is more centralized than the average state, our system is not among the 10 most centralized tax systems;
  
  
• At the extreme, centralization can leave localities without discretion to fund local initiatives independent of the state;
  
  
• Centralization can be a positive (e.g., centralization allows a state to minimize funding disparity among school districts).