Stillwater News Press

May 18, 2012

Oklahoma governor, lawmakers agree on tax cut

Associated Press

OKLAHOMA CITY — OKLAHOMA CITY (AP) — Gov. Mary Fallin and members of Oklahoma’s Republican-controlled Legislature reached an agreement Thursday on a nearly one-half of 1 percent cut to the top personal income tax rate beginning in 2013.

Flanked by dozens of GOP lawmakers, Fallin, House Speaker Kris Steele and Senate President Pro Tem Brian Bingman announced details of the plan, which would reduce Oklahoma’s top personal income tax rate from 5.25 percent to 4.8 percent next year. The proposal would also modify certain personal income tax deductions, eliminate more than 30 business tax credits and reduce the number of income tax brackets from seven to three.

“It’s the taxpayer’s money, not the government’s money,” said Fallin, who has made reducing the state’s income tax a top priority this year. “We want to let more Oklahomans keep their money, their hard-earned money.”

The proposal is expected to cost the state $32.7 million in the upcoming fiscal year that begins July 1, and $102 million in fiscal year 2014 after the cut is implemented for an entire fiscal year. The plan also includes a one-time trigger for tax year 2015 to further reduce the income tax by another .3 percent if certain state revenues grow by at least 5 percent. That additional cut, if it takes place, is projected to cost the state an estimated $171 million.

House and Senate leaders both suggested Thursday they have the votes to pass the plan through the House and Senate and send the package to the governor. Democrats, who are outnumbered 67-31 in the House and 32-16 in the Senate, have promised to oppose any cuts to the state’s income tax, saying it will take away a key funding source for such critical state services as education, roads and public safety. The income tax accounts for about one-third of the money lawmakers appropriate each year.

“With the huge list of unfunded mandates that have been passed over the years, and with the debts and obligations we currently face, why aren’t we paying off those debts rather than cutting taxes right now?” said Rep. Joe Dorman, D-Rush Springs.

Sen. Clark Jolley, the chairman of the Senate Appropriations Committee and a key negotiator on the tax plan, said the proposal will not harm education and that the budget for the upcoming fiscal year will not include any reductions in funding for common education.

“Teachers will not lose their jobs because we’re giving tax relief to Oklahomans,” said Jolley, R-Edmond. “Common education is a core function of government, and we’re not going to cut it.”

A deal still has not been reached on a budget for the fiscal year that begins July 1, but both Jolley and Rep. Earl Sears, chairman of the House Appropriations Committee, said that could be wrapped up this week now that an agreement has been reached on the income tax cut.

“We’re very confident that we’ll be able to knock the budget out in no time,” said Sears, R-Bartlesville.

Lawmakers must adjourn by next Friday.

Fueled in large part by a boom in Oklahoma’s oil patch, state revenue collections have continued to climb for more than a year, and through April had exceeded projections by more than $350 million. Fallin and legislative leaders said they are confident that the growth in state revenue will help to offset the cost of the tax cuts.

Fallin has consistently touted a reduction in the state’s income tax as a way to recruit more businesses and industries to the state. She noted Kansas lawmakers recently approved a cut in their income tax rate and Texas has no income tax, leaving Oklahoma “in an income tax sandwich.”

“It puts us at a disadvantage when it comes to retaining jobs, being attractive to business coming here and helping Oklahoma families,” Fallin said.

She initially wanted a deeper tax cut to 3.5 percent in the first year and triggers to eventually eliminate the income tax altogether, but legislators balked at eliminating tens of millions of dollars in tax breaks needed to pay for the plan.

According to details of the plan released late Thursday, Oklahoma’s current seven income tax brackets would be reduced to three: a 1 percent tax rate for up to $2,500 in taxable income; a 3.3 percent rate for $2,500 to $7,500 in taxable income; and 4.8 percent for more than $7,500 in taxable income.

The proposal would also eliminate the personal exemption of $1,000 per dependent for those individuals who earn more than $35,000 or for couples who earn more than $70,000. That change is expected to save the state an estimated $54 million, said Secretary of Finance Preston Doerflinger. Another change expected to generate an additional $58.4 million would eliminate the deduction for state income or sales taxes paid that individuals currently can transfer from their federal itemized deductions to their state return.

Thirty-three tax breaks offered to business and industry would be taken away. They cost the state about $4.6 million annually and include tax credits for child care centers, small business guaranty fees, biodiesel facilities, poultry litter transportation, and interest and dividend exemptions claimed on more than 420,000 tax returns.

“The tax code reforms represented in this agreement is not the end,” said Steele, R-Shawnee. “It’s rather just the beginning of the work that the Legislature will be doing moving forward.”