Budget & Tax

Ray Carter | March 18, 2024

Economic growth allows tax cuts, not just spending

Ray Carter

In the last six years, Oklahoma’s economy has grown dramatically, allowing state lawmakers to dramatically increase state government spending.

House Speaker Charles McCall said that revenue growth also highlights the need for lawmakers to pass tax cuts this year and endorsed putting the personal income tax on a gradual path to full repeal.

“We need to work hard to help Oklahomans with their tax burden. When the economy’s output doubles, we should be able to lower the (tax) burden on people,” said McCall, R-Atoka. “We don’t have a money problem in the state of Oklahoma. If anything, we have a spending problem and we need to return some of that money back to the people, albeit small amounts. Two hundred and fifty million sounds like a lot of money. That’s what a quarter-percent cut is. But the recurring revenue of the state of Oklahoma has increased $5 billion on a recurring basis every year.”

The House speaker noted that six years ago state government’s appropriated budget was just about $6 billion. Today, it is around $11 billion.

During that six-year period, Oklahoma lawmakers have authorized one income-tax cut that lowered the top rate from 5 percent to the current rate of 4.75 percent.

“I just don’t think you can ignore the fact of how much our economy has grown over the last six years,” McCall said. “With regard to personal income tax, it’s personally offensive to me that we’ve only made a quarter(-point) cut to the people of the state of Oklahoma. The revenues to the state have almost doubled in a six-year time frame. We should be doing more to cut the personal income tax.”

Members of the Oklahoma House of Representatives have approved two measures, which now await votes in the state Senate, that would put the income tax on the path to full repeal.

House Bill 2950, by McCall, replaces the bracket system for personal income tax with a 4.75 percent flat tax beginning in tax year 2025 and raises the threshold for imposition of the tax to income above $13,350 for single filers or $27,100 for joint filers, heads of households, and qualifying widowers.

Currently, Oklahoma’s top personal income tax rate is imposed on those with incomes of $7,200 for single filers and $12,200 for joint filers and lower tax rates are imposed for those with incomes below those thresholds.

HB 2950 also establishes revenue triggers to allow the personal income tax rate to be lowered in future years and fully eliminated over time.

Under the bill, the personal income-tax rate would be cut by a quarter-point every year that cumulative state revenue growth is equal to or greater than $400 million. When the tax rate has been reduced to 3 percent, the rate would be reduced by three-tenths of a point each year until the rate is zero and the personal income tax is completely phased out.

In practical terms, that means Oklahomans would see about $260 million in income-tax cuts for every $400 million increase in state revenue.

House Bill 2949, by McCall, leaves in place the current tax brackets, but still puts the income tax on the path to full elimination over time through the same method as HB 2950.

The state’s top rate of 4.75 percent would remain in place for at least another year under both bills because, McCall noted, Senate leadership “has communicated that they’re not interested in cutting that rate at this time.”

Because HB 2950 eliminates the bottom five income-tax brackets and exempts many low-income earners from personal income tax, McCall said the bill “would do more immediately” for Oklahomans and “move the state of Oklahoma to a better position overall with the other states in the country, competitively, with our personal income-tax rate structure.”

That bill would save Oklahomans about $300 million per year, he said.

“These [income-tax cut] bills are dead on arrival when they get to the Senate.” —House Democratic Leader Cyndi Munson

“That does put us on a path to eventually becoming competitive with the most robust economies throughout the United States,” McCall said.

He said Tennessee used a similar approach to fully repeal a 6-percent income tax, which was applied to interest and dividends in that state, over just five years.

Gov. Kevin Stitt said he “totally” agreed with the premise of the two House bills.

“When you have excess revenue, you automatically trigger a tax cut,” Stitt said. “Makes perfect sense.”

The governor also praised HB 2950’s proposal to eliminate the tax brackets that impact low-income Oklahomans.

“It literally gives an absolute tax cut for every single Oklahoman, but it (also) removes taxes from the very poorest Oklahomans,” Stitt said. “So, everybody under $27,500 in income, filing jointly, has to pay taxes right now.”

He called the bill “a great tax cut for working families, working folks on the lower income bracket.”

Democrats, Senate Leaders Prefer Spending

However, House Democratic Leader Cyndi Munson, D-Oklahoma City, denounced the tax break proposals in a release.

“Legislation put forth by the Republican supermajority during the final days of deadline week disproportionately helps those at the top of the income tax bracket—continuing to financially benefit the wealthiest Oklahomans,” Munson said. “HB2950 creates a flat tax, which is widely known to help those at the very top more than it ever helps those at the bottom.”

But McCall noted HB 2950 achieves a goal that Democrats claim to support.

“For years, we’ve heard the minority caucus say they want tax relief for those people it would help the most,” McCall said. “House Bill 2950 does away with all of the low-income tax brackets—not the highest.”

At the same time Senate leaders have cited concerns about the impact of approving additional tax cuts after lawmakers repealed the state portion of the sales tax on some groceries, but McCall noted Oklahoma has record savings today and the impact of a new quarter-point tax cut is very little compared to the overall increase in government spending in recent years.

Senate leaders have not directly addressed HB 2950 or HB 2949, but Democrats announced that they are effectively aligned with Senate Republican leaders in the income-tax debate.

“These bills are dead on arrival when they get to the Senate,” Munson said. “It is common knowledge that the Senate Republicans will not take up any tax cuts since the elimination of the state sales tax on groceries.”

The same day McCall discussed tax-cut measures, members of the Senate overwhelmingly approved Senate Resolution 31 with both Democrats and Republicans voting for the measure, which spelled out the broad outlines for state budget spending sought by members of that chamber this year.

The measure includes no discussion of income-tax changes, but does include significant amounts of new spending, although much of that spending has been labeled “one time” funding.

Even so, state Sen. Julia Kirt, D-Oklahoma City, voted against the budget proposal, complaining that Stitt directed agencies to find ways to operate without spending increases this year, and suggested spending should be increased even more.

“Agencies were artificially constrained to tell us what they really need,” Kirt said. “We did see that the executive branch limited what those agencies could request, and so we saw a lot of flat budgets.”

But Senate Appropriations Chairman Roger Thompson, R-Okemah, said senators ignored those requests in many instances.

“Even when agencies are requesting a flat budget, our subcommittee chairs and their teams have been able to work with those agencies and make sure that we’re trying to supply the needs of the state, not just simply their requests, and at times actually going against those requests,” Thompson said.

Following the vote on SR 31, Senate President Pro Tempore Greg Treat hailed the passage of the Senate budget plan.

“This is a responsible budget that balances the needs of Oklahoma and one that keeps us on a sustainable trajectory that keeps our commitments to tax relief, investing in education, transportation, and health care,” said Treat, R-Oklahoma City.

SR 31 notes the state has $11.6 billion in recurring revenue available for appropriation this year, which will be reduced by $312.9 million due to grocery-tax changes, but then calls for more than $12.3 billion in spending.

Stitt has openly warned against lawmakers increasing government spending too much, especially when spending hikes are achieved by raiding state savings.

“We can’t keep spending savings,” Stitt said. “Last year, we spent one-time funds, over $1 billion of our savings. I think there’s a proposal to spend another billion dollars in savings and increase government spending on just base-level expenses and operations and new ongoing costs. You can’t say we don’t have money to cut taxes, but then increase expenses.”

Ray Carter Director, Center for Independent Journalism

Ray Carter

Director, Center for Independent Journalism

Ray Carter is the director of OCPA’s Center for Independent Journalism. He has two decades of experience in journalism and communications. He previously served as senior Capitol reporter for The Journal Record, media director for the Oklahoma House of Representatives, and chief editorial writer at The Oklahoman. As a reporter for The Journal Record, Carter received 12 Carl Rogan Awards in four years—including awards for investigative reporting, general news reporting, feature writing, spot news reporting, business reporting, and sports reporting. While at The Oklahoman, he was the recipient of several awards, including first place in the editorial writing category of the Associated Press/Oklahoma News Executives Carl Rogan Memorial News Excellence Competition for an editorial on the history of racism in the Oklahoma legislature.

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