Oklahoma lawmakers have come to more than a dozen agreements on state budget line items during the last three budget summits between them and Gov. Kevin Stitt.
Among the top disagreements remaining is whether they should flatten, and eventually eliminate, Oklahoma’s personal income tax, and Stitt and House Speaker Charles McCall have chosen their champion bill to get it done. Treat remains in solid opposition.
How flattening the rate would affect Oklahomans
House Bill 2950, written by McCall earlier this session, proposes cutting the state income tax for the lowest two tax brackets and establishing a 4.75% flat rate for all the others. It also reduces that rate by a quarter percent every year total tax collections exceed the year before by at least $400 million.
Gov. Stitt was the first to mention a flat tax rate at the May 9 meeting.
“I would love to do a quarter percent tax cut. That would be great,” he said. “But my proposal is really, let’s just help the poorest Oklahomans. And so if we take all the brackets up to $27,100, we slap them out, we leave the 4.75 percent, at the top, so we don't touch the top bracket. That would help the lowest and the poorest Oklahomans deal with inflation.”
He said if lawmakers are going to spend more than $1 billion on strategic projects out of the state’s savings account, “it's only right that we would do another tax cut for Oklahomans.”
Stitt said a flat tax rate should come first, and if revenues continue to improve, slowly cutting the rate would naturally follow. He said that Oklahoma will be up to par with other states that have eliminated their income tax.
“Let's keep up with Arkansas and Texas and Iowa, Nebraska, and all these states are continuing to cut,” Stitt said during his opening speech at the May 13 meeting.
McCall’s bill follows the structure laid out by Stitt. He even repeated the governor’s talking points about helping poor Oklahomans and claimed the grocery tax cut the Senate helped get to the governor’s desk earlier this year didn’t do it.“
We don’t need to lose sight on, in terms of the grocery tax, it didn’t help the poor in the state of Oklahoma,” McCall said. “The tax cut we’re talking about will leave more money in their pocket.”
Senate President Pro Tem Greg Treat defended the legislature's work around tax cuts this session and raised concerns about destabilizing state revenues going forward.
“We've talked about a grocery tax, and we came into agreement and gave the largest tax cut in state history that gave the most benefit to most people,” Treat said. “I think the revenue will have to be better if we're going to talk more about taxes, which obviously, you and the governor want to do.”
Impact of Republicans’ proposal
David Hamby, communications director at the center-left think tank Oklahoma Policy Institute, said flattening the state income tax as proposed by the Republican majority in HB 2950 would benefit the wealthy and hurt low and middle-income earners.
Today, Oklahomans filing single and making more than $13,550, or filing married and making double that, pay a 4.75 percent tax on any income above those limits. People making below those amounts pay smaller percentages.HB 2950 proposes that anyone filing as single and making $13,550, or filing married and making $27,100, or less, would pay zero income tax. Anyone making more than those limits would pay the 4.75 percent tax rate.
Hamby said researchers at the institute have looked at other examples of a flat tax system with a higher standard deduction Hamby said.
“We have found that about two-thirds of the benefits will go to those making above $130,000,” he said. That’s because some people will actually see how much they pay in taxes go up as their rates are flattened to match the new, higher flat rate.
In addition, if the rate is eventually eliminated, Hamby said, it would cost the state about a third of its revenue collections. “The state income tax generates about one in three of all state dollars,” Hamby said. “That could mean that every state agency sees a 33 percent budget cut or that any number of state services could be shuttered.”
lawmakers supporting the tax cut said that won’t happen because the rate will only lower if a revenue increase triggers it.
Democrats react
There were no Democratic lawmakers at the meeting.
Senate Minority Leader Kay Floyd and Sen. Julia Kirt attended the first meeting last Monday and skipped the follow-ups that Thursday and Monday. Kirt said in a social media post minority party leaders weren’t invited to the budget meetings.
“If I can’t speak or get the handouts, I’d rather watch remotely,” she said. “We stand ready to work together on bipartisan solutions when they are.”
Among the tax-related inflation solutions proposed by Democrats was House Bill 3987, by House Minority Floor Leader Cyndi Munson. That measure proposed raising the existing sales tax relief credit for low-income Oklahomans from $40 - the amount previously established by the legislature - to $200, which supporters touted would help those in need the most.
The bill died in the House committee process.
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