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Oklahoma Legislature Grapples with Tax Reduction

By Hastings Wyman
Southern Political Report

March 26, 2012

True to their deep-seated political philosophy and their campaign promises, Oklahoma lawmakers are working hard to reduce or even eliminate the state’s income tax. With Republican majorities of two-thirds or more in both legislative chambers, the problem isn’t lack of support for tax cuts. On the contrary, at least four proposals targeting the income tax have passed the House or the Senate. The sticking point is how to make up for the loss revenue once the income tax is reduced or eliminated. What might be a loophole that needs closing to one person or business is necessary for the economic well-being of those who benefit from it.

The Republicans would “really like to get a ten-year phase out of the income tax,” says one well-informed observer. But “the big chatter here is that the governor and the Republicans can’t get their tax cuts [because] no one can agree on which loopholes to close.”

State Treasurer Ken Miller, a Republican and supportive of tax reduction, has warned lawmakers that for next year, they should make sure they compensate for revenue losses from any tax reductions by dollar-for-dollar cuts in spending or tax credits, rather than rely on projections of increased revenues next year, which may or may not materialize.

House Speaker Kris Steele (R) has said that negotiations on a final tax bill will begin in the next several weeks with the participation of representatives of the House, the Senate and the governor’s office.

Tax cutting measures were reported out of committee with numerous eliminations of corporate and personal credits and exemptions. Many of these, however, were restored on the floor by lawmakers who heard from constituents who benefited from them, including such politically influential groups as senior citizens. Although lawmakers have pledged that they will not harm important core services in education, human services, public safety, and highways, even deeper cuts may have to be made in the budgets of state agencies. “I think there will be some cutting,” says Mike McCarville, editor of the McCarville Report and a long-time observer of Sooner State politics. “How deep the cuts are is the question.”

Here are brief summaries, compiled from press reports, of the four main proposals to reduce and/or phase out the Oklahoma income tax. Each has passed one chamber or the other. A conference committee will come up with the final legislation to send to Gov. Mary Fallin (R), who has also endorsed cutting the tax rate.

House Bill 3038 which would eliminate Oklahoma’s state income tax without increasing other state taxes or cutting “core” government services. Under this proposal the state income tax would be phased out by the end of the tenth year. The bill as passed out of committee eliminated a number of tax credits and loopholes, but was amended on the House floor to make sure it would not increase the tax burden on senior citizens, retirees and veterans. Oklahoma’s Tax Commission estimates this proposal would cost the state $232 million in revenue in fiscal year 2013 and $700 million in fiscal year 2014.

Senate Bill 1571 is similar, reducing the rate from 5.25 percent down to 2.5 percent in the first year after its enactment.

Senate Bill 1623 would reduce the state income tax, phased in over two years, from 5.25 percent to 4.75 percent and would compensate for lost revenue by getting ride of 47 tax credits and exemptions. It could reduce the rate to 4.5 percent if the state has a 4 percent growth rate, over the base year of 2011. The Tax Commission estimates this proposal would increase revenues by $3.3 million in fiscal year 2013, but reduce them by $2.7 million the following year.

House Bill 3061 combines seven personal income tax brackets to three. Couples making under $30,000 a year would pay nothing. Those making between $30,000 and $70,000 would pay 2.25 percent. And those making $70,000 and up would pay 3.5 percent. After 2013, the rates would be reduced by .25 percent in any year with a 5 percent growth in revenue. The Tax Commission estimated the revenue of this proposal at $132 million in fiscal year 2013 and $330 million the next year. However, this estimate was made prior to the legislature’s restoration of a number of personal exemptions and corporate tax credits.

   
   

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