Policy Documents

Oklahoma's Small Private Sector Masks True Tax Burden

Scott Moody and Wendy P. Warcholik –
May 3, 2011

With April 15 behind us, the dreadful thoughts of taxes will soon fade from memory. Yet personal income taxes are only a small part of the tax load that all Oklahomans must bear. This means that paying taxes is really a year-round affair, which makes understanding the tax burden a difficult task.

Building on previous research we have done on Oklahoma’s tax system, in this article we will look at how long it takes the average Oklahoman to pay his or her state and local (S&L) government tax bill. To fully answer that question we must first delve into determining the proper measure of the “tax burden.”*

Under standard tax burden calculations, Oklahoma’s S&L tax burden as a percent of personal income was 9 percent in 2008. Relative to all other states, Oklahoma has only the 43rd highest S&L tax burden in the country, and is below the national average of 10.5 percent. Regionally, Oklahoma ranks on par with Colorado (44th), Missouri (45th), and Texas (46th) and better than Arkansas (31st), Kansas (21st), and New Mexico (8th).

However, this standard methodology is imperfect because personal income includes both private and public sector sources of income. Yet the distinction between the two sectors is important because only the private sector creates new income. The public sector can only redistribute income through taxes and spending. More specifically, public sector spending consists of personal current transfer receipts (Medicare, Medicaid, Social Security, etc.) and government employee compensation (federal, state, and local).