Oklahoma projects lower revenue amid tax cut push

Oklahoma’s fiscal 2026 general revenue fund collections are expected to dip below fiscal 2025 projections as the state considers an income tax cut. 

For the fiscal year that begins July 1, the State Board of Equalization on Friday certified an estimated $8.731 billion in total state funds, which includes $8.484 billion in general fund revenue, down from a projected $8.504 billion for fiscal 2025. The amount lawmakers will be able to appropriate was set at nearly $8.274 billion. 

The all-funds budget estimate, which includes federal funding and available cash, was pegged at $12.363 billion, down from $12.482 for the current fiscal year. 

Revenue estimates for the upcoming fiscal year rose since December due to stronger individual income tax collections and improvements in natural gas production taxes, state officials said. The state has also built up its financial reserves, which Gov. Kevin Stitt said will total $4.95 billion at the end of fiscal 2025.

In his Feb. 3 State of the State address, the Republican governor called for a 0.5% cut to individual and corporate income tax rates and “a path to zero income tax.”

“States all around us — Nebraska, Missouri, Arkansas, Colorado and Louisiana — are cutting their income taxes and have lower rates than we do,” he said. “If we don’t act quickly, we are going to be left behind and we’ll be considered a high tax state.”  

The tax cut plan would cost Oklahoma, which has a top individual income tax rate of 4.75% and a 4% corporate tax rate, about $600 million by fiscal 2027. 

Oklahoma’s Republican Attorney General Gentner Drummond, who skipped Friday’s board meeting of statewide elected officials, announced he has no confidence in the governor’s “manufactured budget numbers” being used to justify a proposed tax decrease.

“The budget certification process is in dire need of reform,” he said in a statement. “The status quo allows the governor to manufacture budget numbers that support his policy agenda, rather than a consensus approach that would reflect legislative input.”

Oklahoma lawmakers lowered personal income tax rates nine times over the past 20 years, according to the Oklahoma Policy Institute. 

Several bills aimed at further cuts have been introduced this session, including measures proposed by Republican State Sen. Dusty Deevers to immediately or gradually eliminate income taxes.

Oklahoma’s tax revenue could be adversely impacted by a case before the state Supreme Court on whether Native Americans who live on reservations and work for tribal governments should pay state income taxes.

The state’s issuer rating was upgraded a notch to Aa1 with a stable outlook last year by Moody’s Ratings, which cited “very strong fund balances and dedicated reserves alongside extremely low leverage and fixed costs from debt, pensions, and retiree healthcare.” Fitch Ratings and S&P Global Ratings have positive outlooks on their AA ratings for Oklahoma.