Budget & Tax

House cuts taxes for all

March 14, 2024

Ray Carter

All Oklahomans would see their tax burden reduced, and the personal income tax would be put on the path to full elimination, under legislation overwhelmingly approved by members of the Oklahoma House of Representatives.

“I made a promise to Oklahomans when the grocery tax passed earlier this session that the House was not done delivering tax relief to our citizens,” said House Speaker Charles McCall, R-Atoka. “This week, the House kept that promise. State savings are at record levels, our economic outlook as a state continues to rise and now is the time to allow Oklahomans to keep more of their hard-earned money. The House believes that principle, and that is reflected by the overwhelming number of votes these bills received.”

House Bill 2950, by McCall, replaces the bracket system for personal income tax with a 4.75 percent flat tax beginning 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.

“Literally no one is going to be paying more taxes with this bill because we’ve increased the threshold for filers, single and for joint and head-of-household,” said House Appropriations and Budget Chairman Kevin Wallace, R-Wellston. “So basically, it is a tax cut for all low earners.”

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.

Wallace noted the bill would require $400 million in growth revenue before a $260 million quarter-point cut to the income-tax rate could occur.

He also noted that prior cuts to Oklahoma’s personal income tax have been followed by increased tax collections due to the stimulative effects of tax cuts. Only in times of full-blown economic recession has that not occurred, and the recessions were not caused by tax cuts.

Democrats objected to the tax-cut proposal.

State Rep. Regina Goodwin, D-Oklahoma City, argued that prior tax cuts created budget shortfalls in the 2015-to-2018 period.

“You remember those years,” Goodwin said. “We literally were in the hole because we had done this. We had to come back and we had to raise taxes. So why do we go back down this path when we had previously dug a hole for ourselves?”

However, the shortfalls referenced by Goodwin were not caused by tax cuts, but by a severe state economic recession caused by an oil bust that hammered the Oklahoma economy.

Oklahoma Tax Commission reports show that Oklahomans lost more than $13 billion in taxable income from 2014 to 2015 and families reduced purchases subject to state sales and use tax by $4.1 billion from state budget years 2015 to 2016. From September 2015 to September 2016, roughly 21,800 oil and gas and manufacturing jobs were eliminated in Oklahoma.

Under those conditions, shortfalls were guaranteed to occur no matter what income-tax rate was in place.

State Rep. Andy Fugate, D-Oklahoma City, said elimination of personal income tax would leave Oklahoma state government dependent primarily on consumption taxes, which he said “decline precipitously anytime we have a recession or some kind of downturn in the economy.”

However, research has found consumption taxes are more stable than income taxes.

The Tax Foundation notes, “From a revenue perspective, consumption taxes can provide a significant and stable source of financing for governments. In economic downturns, consumption activity tends to decline less than incomes, so governments that rely more on revenue from consumption taxes are under less pressure to run significant deficits.”

HB 2950 passed the Oklahoma House of Representatives on a 74-21 vote. The bill now proceeds to the Oklahoma Senate.

House lawmakers also passed a similar second tax bill.

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

HB 2949 passed the Oklahoma House of Representatives on a75-19 vote. The bill now proceeds to the Oklahoma Senate.