Support grows for Oklahoma governor's plan to cut state income tax

March 25, 2013

By Michael McNutt

Gov. Mary Fallin's simple proposal to reduce Oklahoma's top personal income tax is gaining traction and appears to have the best chance of passage compared with a bill that instead calls for a deeper cut but is dependent on reducing several business tax credits and personal deductions.

The State Chamber, which has considerable clout in the state Capitol, is supporting the governor's plan, which is contained in House Bill 2032, authored by House Speaker T.W. Shannon, R-Lawton.

The bill also has the backing of the Oklahoma Council of Public Affairs, a conservative think tank with close ties to many Republicans in the GOP-controlled Senate and House of Representatives.

HB 2032 would reduce the state's highest personal income tax rate to 5 percent from 5.25 percent. Senate Bill 585 calls for lowering the rate to 4.75 percent while eliminating or amending numerous income tax credits, deductions and exemptions, as well as limiting some itemized deductions.

Several lawmakers said the simplicity of the Fallin-Shannon tax plan gives it an edge.

“If anything happens, I'd say we're probably looking at a quarter of a percent cut that will be the final version that's voted on,” said House Minority Leader Scott Inman, D-Del City.

The Republican governor and most of the GOP lawmakers had high hopes last year that a measure to reduce the personal income tax would be approved. Fallin and GOP legislative leaders are hoping the impasse that developed at the end of last year's session won't carry over this year.

HB 2032 passed the House and is awaiting action in the Senate, while SB 585 has won Senate approval and is waiting to be taken up in the House.

The governor, while preferring to reduce the top personal income tax rate to 5 percent, supports making a responsible, meaningful reduction in the personal income tax, said her communications director, Alex Weintz.

“However, she is open to any and all plans that would reduce that rate farther, while still leaving enough state revenue to fund priorities like education,” he said.

Better luck this year?

Lobbyists came out in force last year to protect tax credits identified as targets for elimination. Eventually those plans were scrapped and the Senate in the last days of the session came up with an alternative plan, but it sputtered when it was determined some middle-class families would have to pay more in income taxes. The House came up with another plan, but lawmakers ran out of time, with the Senate not taking up the House bill and the House not hearing the Senate plan.

Senate President Pro Tem Brian Bingman, R-Sapulpa, said he is optimistic the personal income tax rate will be reduced this year.

“We fully expect to have a tax cut this year,” he said.

House and Senate Democrats are opposed to reducing state income tax rates as they were a year ago, saying state agencies, many of which were cut as much as 20 percent over the past four years mostly because of the national recession, need to have funding restored.

They also are concerned that state tax revenues, which have been beating prior-year collections, now are dragging. Total collections for the general revenue fund, the state's main operating fund, for the first eight months of this fiscal year are 0.8 percent below total collections for the same period a year ago.

Lawmakers have about $212 million more to appropriate this year compared with last year to put together a $7 billion budget for the 2014 fiscal year, which starts July 1. Each tax-cutting plan is expected to cost about $40 million for the 2014 fiscal year and more than $100 million when fully implemented.

HB 2032 is not dependent on reducing or eliminating any tax credits or exemptions or deductions.

SB 585, by Sen. Mike Mazzei, R-Tulsa, would eliminate more than two dozen tax deductions, including for the sale of national landmarks, employer-provided child care, hepatitis immunizations for employees and for manufacturers of electric motor vehicles.

It also would change or eliminate several individual taxpayer deductions, including a child-care tax credit, which would be limited to those with incomes under $50,000, and the personal exemption. The personal exemption restriction would no longer be allowed for any taxpayer who can claim fewer than four personal exemptions, and for single individuals who earn more than $35,000. The change would save the state nearly $440 million.

Inman said SB 585 is too similar to measures that failed to win approval last year.

“We thought we had litigated this issue last year when they offered up a plan that would actually cut taxes for a few and raise taxes on others,” he said. “That's essentially what the Senate plan does. … We think when that bill comes over to the House it will be difficult to find 51 votes to raise taxes on working families and cut taxes on others.”

Outside viewpoints

Jennifer Monies, senior vice president of communications at The State Chamber, said the business group is backing HB 2302 because it meets its criteria of supporting a gradual reduction of the personal income tax, provided that the tax burden will not be shifted onto business, and that economic development incentives will be protected and core state services will not be underfunded.

“We have concerns with SB 585 by Sen. Mazzei in its current form because the bill limits economic development tax incentives that we believe have successfully created jobs and investment in our state,” Monies said. “Sen. Mazzei has shown a willingness to work with us on these concerns.”

Michael Carnuccio, Oklahoma Council of Public Affairs president, said HB 2032 offers “true tax relief for Oklahoma families and job creators. It helps Oklahoma be competitive in the race among states for jobs and economic growth, particularly as other states work to lower the tax burden on their citizens.”

“While the Senate has been a pro-growth champion in 2013 on workers' comp reform, the tax proposal the Senate passed would increase taxes on many Oklahoma families and would target job creators to pay for a rate reduction that wouldn't even kick in for two years,” Carnuccio said. “This sends the wrong message as we try to make Oklahoma more attractive to employers fleeing high-tax states.”

The group is releasing its idea Monday for a state budget, which will include a plan for a half-percent income tax cut without raising taxes or reducing funding for education, transportation or public safety.

David Blatt, director of the Tulsa-based Oklahoma Policy Institute, which supports funding for state programs that serve low-income Oklahomans, said he likes that SB 585 defers tax cuts until 2015, which would make additional revenue available this year for legislators to fund state agencies. He also likes that the bill keeps tax deductions for low- and moderate-income Oklahomans.

“Overall, it's a pretty reasonable tax reform package,” he said