A proposed penny sales tax increase for education would push Oklahoma to the top of list of states with the highest combined state and local sales taxes, according to data from a national research group.
It also would elevate Tulsa and Oklahoma City to No. 3 and No. 4, respectively, among major cities with the highest combined sales taxes, trailing only Chicago and Seattle, the Tax Foundation said.
Oklahoma Tax Commission data compiled by Oklahoma Watch show that many cities and towns already have comparatively high sales tax burdens, with several dozen of them levying a dime or more at the checkout stand and five already ringing up 11 cents on the dollar (part of Clinton, in Washita County; Hallett; Kiowa; Red Rock, and Savanna.)
That might not be a problem, said Tax Foundation Policy Analyst Jared Walczak.
“It’s not necessarily bad to have a higher-than-average sales tax if you’re using that to have lower taxes in other areas,” Walczak said. “To some degree, that’s what Oklahoma does.”
Walczak said Oklahoma has much lower-than-average property taxes, and its individual and corporate income tax rates are close to the national average, in terms of their contribution to the cost of state, county and local government.
The Tax Foundation is a nonpartisan, nonprofit research organization based in Washington, D.C.
Oklahoma’s sales tax is under scrutiny because University of Oklahoma President David Boren has launched an initiative petition campaign to put a penny sales tax increase on the statewide ballot in November 2016.
If Boren’s proposed tax increase were approved by voters, the state sales tax would increase from the current 4.5-cent rate to 5.5 cents.
Counties, cities and towns impose additional sales tax levies on top of the state rate, ranging as high as 10.5 cents in Clinton, Fort Gibson, Kiowa, Red Rock and Savanna, Tax Commission data show.
The Boren plan would raise an estimated $615 million in additional funds for K-12 and higher education. About 60 percent is earmarked for common education, and most of it would be used to give Oklahoma schoolteachers a $5,000-a-year raise.
(The state Office of Management and Enterprise Services projects the tax would raise less, about $570 million, because of declining sales tax revenue. That would still be enough to pay for the salary increase, said Amber England, of Stand for Children Oklahoma, which was involved in writing the petition.)
In a recent interview with Oklahoma Watch, Boren said he would have preferred to finance his initiative with something other than a sales tax increase, but opinion polling suggested that a sales tax hike had the best chance of passage.
“I’m not a fan of the sales tax – everybody knows that. But I’m desperately in favor of this measure,” said Boren, a Democrat and former governor and U.S. senator.
“The education crisis is so dire … It’s a pragmatic solution, but it’s the only solution we could find,” Boren said.
High sales taxes are opposed by some economists and public officials because they are considered regressive. That means they tend to have a disproportionately large impact on the poor, who spend a bigger portion of their income at the grocery store and other retail establishments.
Some advocates of Boren’s proposal argue that any improvement in education is inherently progressive, regardless of the funding source. That’s because improving education gives future generations a better shot at contributing to Oklahoma’s economic growth, they say.
The Tax Foundation’s research shows that Oklahoma currently has a 8.78 percent combined state and local sales tax rate, ranking it No. 6 nationally. If Oklahoma voters approved a penny increase, Oklahoma would have 9.78 percent rate, higher than any other state. (Tennessee, which has no individual income tax, is now No. 1 at 9.46 percent.)
In a separate Tax Foundation ranking of the nation’s 50 most populous cities, Tulsa ranks 12th with a combined state, county and local sales tax rate of 8.52 percent. Oklahoma City ranks 14th at 8.38 percent.
If voters approved a penny sales tax increase, Tulsa would rank third and Oklahoma City fourth. Chicago currently has the nation’s highest big-city sales tax, at 10.25 percent, followed by Seattle at 9.6 percent.
Besides the Boren tax proposal, Oklahoma County also faces the possibility of a half-penny sales tax increase advocated by local officials who are trying to raise funds to improve the county jail and other local infrastructure.
Walczak said some states have managed to have competitive tax structures featuring higher-than-average sales taxes combined with low or no income taxes.
But he warned that Oklahoma might be nearing the limit of what taxpayers will find tolerable when they go to buy groceries, clothes and other sales-taxed items.
“There does seem to be a psychological cutoff point somewhere around the 10 percent range,” he said.