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The Oklahoman - Income Tax Cut will Boost Economy, Oklahoma Governor Says

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By Michael McNutt

Cutting the state's top personal income tax rate, a move contained in legislation set to be signed into law this month, sends a strong message to businesses that Oklahoma is serious about providing tax relief for residents and businesses, Gov. Mary Fallin says.

"Lowering our taxes in Oklahoma will absolutely get the attention of businesses, not only here in our state, but businesses across our nation," she said. "It helps us have a competitive advantage.

"It sends a very strong signal that we're not going to be raising taxes upon our businesses or upon our citizens, which makes us more attractive to do business and more attractive as a place to live," Fallin said.

The governor said Oklahoma was caught between Texas, which has no personal income tax, and Kansas, which last year lowered its income tax rate last year from 6.45 percent to 4.9 percent.

"Now we'll have a much more competitive tax rate once the income tax cut goes into full effect in 2016," Fallin said. "At a time when other states have been facing budget shortfalls, many have actually increased their taxes and balanced their budgets on the backs of families and businesses."

House Bill 2032 passed the House of Representatives last week but is being held up by a parliamentary procedure to allow members to reconsider a vote on making the measure take effect as soon as the governor signs it.

The measure calls for reducing the state's top income tax rate, which most residents pay, to 5 percent from 5.25 percent. It takes effect Jan. 1, 2015. Taxpayers would first see the effect of the tax cut in 2016.

"It will put more money back into the bank accounts and pocketbooks of Oklahoma taxpayers, which will provide for much-needed tax relief to working Oklahomans," Fallin said. "It will help spur job growth and create more revenue for our state."

Backers of the tax cut said about 62 percent of the state's 1.6 million tax filers would see a benefit by paying less in income taxes. None would see an increase.

Estimates by the Oklahoma Tax Commission show that the tax cut would save the average taxpayer $82 per year and cost the state an estimated $136 million annually when fully implemented.

Personal income taxes bring in about one-third of the state's legislatively appropriated budget. For this fiscal year, personal income taxes are estimated to bring in $2.1 billion of the $6.8 billion budget.

Those with federal adjusted gross incomes of $25,999 or less would get back $8 or less, or nothing, according to the Tax Commission. Filers would have to have an adjusted gross income of at $80,000 to $99,999 to get back $108. Those with an adjusted gross income of $200,000 to $499,999 can expect a savings of $371 and those earning $1 million or more would get back $1,377.

Criticism lingers

Critics, mostly Democrats, said the tax cut is irresponsible because of needs of common education and higher education, a waiting list for services for people with developmental disabilities, overcrowded and understaffed prisons and raises for state workers.

Senate Minority Leader Sean Burrage, D-Claremore, said the average savings amounts to less than a quarter a day.

"But, when you add all those quarters up, it means $233 million that could be used to restore the funding cuts to our local schools, reduce class sizes, ensure our rural schools don't get shuttered and consolidated, or give our teachers, state employees or our highway patrol a well-deserved raise," he said.

House Speaker T.W. Shannon, R-Lawton, said Oklahoma has received record revenues since it began reducing the personal income tax rate.

In the past 15 years, the top personal income tax rate has been reduced from 7 percent to 5.25 percent, or a reduction of about 25 percent. During that same period, Oklahoma has seen a 47 percent increase in personal income tax revenues, from $1.9 billion to $2.8 billion, he said.

"Hardworking Oklahomans should keep more of their hard-earned money because they will either save it or spend it," Shannon said. "That is how you grow an economy."

Factor for business

Fred Morgan, president of The State Chamber and a former House member, said the income tax cut will help the state's economy. The last reduction in the personal income tax took effect two years ago when it was reduced from 5.5 percent to 5.25 percent.

"Our policy is that we support a gradual reduction of the personal income tax as long as it's not shifted to business," he said.

"We do think it will have a positive effect on the economy."

The overall tax structure is one of about 15 items businesses look at when considering moving to a state, Morgan said.

HB 2032 also calls for lowering the personal income tax rate to 4.85 percent if total revenue growth in the 2016 fiscal year reaches a certain threshold.

Altogether, the savings for the average taxpayer would be about $143 per year and cost the state about $237 million a year when both cuts are fully implemented, according to the Tax Commission.

By delaying the income tax cut, lawmakers will have time next year to consider reducing or eliminating economic incentives, such as tax credits, that could help pay for the cost of the cut, said Rep. David Dank, R-Oklahoma City.

Dank tried unsuccessfully the past two years to get legislation passed that reduced or eliminated several tax credits.

The governor and lawmakers reached an agreement on HB 2032 last month, allaying fears that they could reach an impasse over a personal income tax cut for the second year in a row.

Lawmakers last year discussed several proposals, some of them complicated and most dependent on eliminating business tax credits or certain exemptions and deductions. None passed.


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