Budget & Tax
House approves income tax cut
May 19, 2021
Ray Carter
Members of the Oklahoma House of Representatives have voted to cut Oklahoma’s income-tax rate to a level that will make it one of the lowest in the country.
House Bill 2962 cuts the state personal income-tax rate by a quarter-point, lowering the top rate from 5 percent to 4.75 percent. Oklahoma’s top income tax rate kicks in at just $8,700 of taxable income for single filers and $15,000 for couples, and the lower rate is expected to reduce the tax burden on Oklahomans by a combined $170 million annually.
“This is a tax relief for every citizen of the state of Oklahoma, for every tax band, every income level—quarter percent … everybody gets it,” said House Appropriations and Budget Chairman Kevin Wallace, R-Wellston. “It’s not a tax relief for the wealthy or the privileged. It’s for everyone.”
Wallace said the rate reduction would save the average Oklahoma taxpayer $152 each year.
He said the new top rate of 4.75 percent will be the seventh-lowest personal income-tax rate among states that levy that tax.
House Appropriations and Budget Committee Vice Chair Kyle Hilbert, R-Depew, said the legislation is an improvement over a previous proposal that would have provided tax credits equivalent to a quarter-point rate reduction.
“It gives certainty to taxpayers and businesses that this isn’t just some credit, this isn’t some deduction,” Hilbert said. “This is an actual reduction of the rate. And Oklahoma is open for business. We want businesses to move here.”
Under the Oklahoma Constitution, tax credits can be repealed by a simple majority vote of the Legislature, but it takes a three-fourths supermajority in both chambers of the Oklahoma Legislature to increase tax rates.
That was one point of objection raised by opponents of the bill, who also argued the financial challenges that ultimately led to approval of massive tax increases in 2018 were caused by lawmakers’ prior willingness to cut taxes. Oklahoma’s income-tax rate was as high as 7 percent in the 1990s but was gradually reduced over the years.
“We are preparing to repeat the mistakes of the past,” said Rep. John Waldron, D-Tulsa. “Why are we doing this?”
“The only thing more remarkable than raising half-a-billion new dollars in taxes in a conservative state like this is that it wasn’t nearly enough to undo so much of the damage that we had done through years and years of inaction and neglect,” said Rep. Forrest Bennett, D-Oklahoma City.
He called for repealing the sales tax on groceries rather than reducing the income tax.
House Democrats previously unveiled a budget proposal that would have eliminated the tax on groceries, but it achieved that change in part through raising other taxes by more than $200 million. The Democratic plan called for creating two new income-tax brackets that would raise rates to 6 percent and 7 percent, respectively, and eliminating the capital-gains tax exemption for all businesses except agriculture.
But Wallace said the challenges that led lawmakers to raise taxes in the 56th Legislature, which served in 2017 and 2018, were not the result of prior tax cuts but unrelated economic conditions.
“As the state got to the point that we did in the 56th, it was because of the economy, the price point on a commodity that really has nothing to do with supply and demand: oil and gas—and Oklahoma is an energy state,” Wallace said.
The state’s financial challenges through 2018 were tied to a major oil bust that reduced drilling and associated jobs and spending, severely reducing economic activity in Oklahoma.
Wallace also noted Oklahoma will have much more in state savings than the state did in 2018, leaving state government in a better position to handle economic downturns and budget shortfalls. This year’s budget agreement is expected to raise state savings above $1 billion.
He said it was “the right time” to “be bold.”
“The data will show you that you cut taxes for your citizens, you actually stimulate the economy,” Wallace said. “People invest. They’ll go out and spend money. They’ll invest in their businesses. They’ll invest in their homes. The sales tax collections go up and the economy thrives.”
HB 2962 passed the Oklahoma House of Representatives on an 81-19 vote.
Lawmakers also approved House Bill 2960, which cut the state’s corporate income tax from 6 percent to 4 percent. HB 2960 passed on a 79-19 vote.
Both measures now proceed to the Senate.