Claremore Daily Progress

May 1, 2013

House gives final approval to income tax cut

Sean Murphy
Associated Press

OKLAHOMA CITY —

The Oklahoma House gave final legislative approval Wednesday to a bill that would slash the state’s income tax rate to 5 percent in 2015 and provide $120 million for improvements to the state Capitol, both top priorities of Republican Gov. Mary Fallin.

The Republican-controlled House voted 65-35, mostly along party lines, to send the bill to Fallin, who is expected to sign it. It would cut the state’s top income tax rate from 5.25 percent to 5 percent beginning Jan. 1, 2015, with a second cut to 4.85 percent set for 2016 if state revenues continue to rise.

Cutting the income tax rate has been a top priority for Fallin, who says a tax cut will help improve Oklahoma’s economy and make the state more attractive to businesses and industries.

“Lowering the income tax rate will let Oklahoma families keep more of their hard-earned money while spurring job growth and business expansion in Oklahoma,” Fallin said in a statement. “My thanks go out to the Legislature for their work on this important issue.”

But Democrats argued the tax cut was irresponsible and would dramatically reduce funding for critical state services such as public education, health care and programs for the poor.

House Democratic Leader Scott Inman questioned the wisdom of approving an income tax cut for 2015 or 2016 when it’s possible that state revenues could plummet before then.

“Even if we fall off a cliff by $1 billion, we’re still going to cut $120 million?” said Inman, D-Del City. “Explain to me how that is fiscally responsible.”

The initial drop in the top rate to 5 percent is expected to have a fiscal impact of about $136 million annually when fully implemented, while the second reduction to 4.85 percent would bring the overall annual cost to $237 million, according to state finance officials.

The savings on the average Oklahoma tax return would be about $82 at 5 percent, and $143 at 4.85 percent, according to the Oklahoma Tax Commission.

Several Republicans argued that allowing Oklahoma taxpayers to keep more of their earnings would help spur economic activity.

“Whose money really is it? Is it our constituent’s money or is it the state’s money?” asked Rep. Scott Martin, R-Norman, who introduced the bill on the floor for House Speaker T.W. Shannon. “It’s a philosophical debate.”

But a handful of Republicans voted against the bill. Rep. Jeff Hickman, R-Dacoma, said that while he supported the concept of reducing taxes, he agreed with Inman that it was risky to approve a tax cut so far in advance when it’s uncertain how much the state will collect over the next two years.

“My problem is not with the tax cut we have before us today. My concern is with what we don’t know,” said Hickman, who argued in favor of putting a revenue trigger in place before the initial cut went into effect in case of a revenue downturn. “The Senate amendments are a gamble, and I’m not willing to bet the farm.”

The tax cut on its way to the governor’s desk was the result of an agreement between the House, Senate and the governor’s office. Fallin and Shannon initially pushed for the reduction to 5 percent, effective in 2014, but the bill was changed in the Senate to delay the cut until 2015. In exchange for the delay, Shannon and Fallin lobbied for a deeper cut, and the final version included the reduction to 4.85 percent.

The bill also includes a provision that diverts $120 million in income tax revenue over the next two years to a fund set up to pay for improvements and repairs to the Capitol. The governor and legislative leaders have all supported the idea of funding repairs to the building, but the increasingly conservative House has rejected the notion of issuing bonds to pay for the improvements.

 

Some members argued that including that separate provision in the bill could lead to a legal challenge that the measure violates a provision of the state constitution that requires bills to address only one subject.

 

“This bill has two topics in it. It is going to go to the Supreme Court, and it is going to get thrown out,” said Rep. Joe Dorman, D-Rush Springs.