Oklahoma Senate Republicans have indicated they will not support both an income-tax cut and a repeal of the state portion of the state-local grocery sales tax, saying state government cannot afford to do both.

House lawmakers responded by showing where there’s a will, there’s a way.

The same day members of the Senate approved the grocery-tax change, members of a House committee overwhelmingly approved a significant income-tax cut paired with a new tax on wind energy and voted to put the income tax on the path to full repeal.

The income-tax change would save Oklahomans around $346 million per year in its first phase.

House Bill 2949, by House Speaker Charles McCall, R-Atoka, would create a flat-tax system in Oklahoma with a rate of 4.4 percent while significantly increasing the amount of a family’s income exempted from the tax.

Under the current system, Oklahoma has multiple tax brackets with a top rate of 4.75 percent kicking in at $7,200 for single filers and $12,200 for joint filers (married couples).

But under HB 2949, the lower 4.4-percent income-tax rate would not kick in until single filers earn more than $10,000 and joint filers and heads of households earn more than $20,000.

HB 2949 would also put the personal income tax on a glide path to full elimination.

Under the bill, another 0.233333 percentage point would be shaved off every year that state government’s cumulative revenue growth is equal to or greater than $400 million.

After the sixth rate cut occurs and the rate has been reduced to 3 percent, it would be reduced further by 0.3 points each year until the rate is zero and the personal income tax is completely phased out after 10 years.

The measure also establishes a $1 per megawatt-hour tax on electricity produced by renewable power businesses.

The wind-tax revenue would offset some of the changes caused by lowering the personal income-tax rate, addressing Senate Republicans’ professed concern about state finances, and also reduces the disparity between how energy sources are treated by Oklahoma’s tax code.

State Rep. Brian Hill, a Mustang Republican who is an assistant majority floor leader, said the bill is simply good policy.

“There are those of us that believe this is a really effective way at cutting tax, because it would help all Oklahomans and it would put more money in their pocket to where they could then make choices on their purchases, thus generating more revenue into the economy,” Hill said.

House Majority Floor Leader Jon Echols, R-Oklahoma City, noted that prior income-tax cuts have been associated with stronger economic growth.

“Every time we have cut taxes—income taxes—total revenue has increased,” Echols said.

HB 2949 passed the House Rules Committee on a 7-2 vote that broke along party lines with Republicans in support and Democrats opposed.

Lawmakers on the committee also approved House Bill 2950, by McCall, which would reduce all personal income-tax brackets by a quarter point, lowering the top rate from 4.75 percent to 4.5 percent. The bill also imposes a $1 per megawatt-hour tax on electricity produced by renewable power.

HB 2950 also passed the House Rules Committee on a 7-2 vote that broke along party lines with Republicans in support and Democrats opposed.

HB 2949 and HB 2950 will now proceed to the floor of the Oklahoma House of Representatives.

House lawmakers acted on income-tax rates the same day the Senate took long-delayed action on a proposal to exempt some groceries from the state portion of the state-and-local sales tax.

House Bill 1955, by McCall and Senate President Pro Tempore Greg Treat, provides a state sales-tax exemption for some food products.

Currently, all grocery items are taxed at a 4.5 percent rate. That tax would be lifted off the sale of some grocery items by HB 1955.

One lawmaker noted there are challenges with the grocery-tax measure that may leave many working families feeling cheated.

State Sen. Roger Thompson, an Okemah Republican who chairs the Senate Appropriations Committee, noted that local sales taxes will continue to be imposed on groceries under the bill, meaning it is not a true grocery-tax repeal despite the rhetoric of some supporters.

“This is not the total elimination of sales tax on groceries,” Thompson said.

In his local community, Thompson said people would still pay a 5.5-percent sales tax on groceries due to local levies.

In addition, he noted that many food items purchased at a grocery store would continue to be subject to both state and local sales taxes under the definitions included in HB 1955. For example, Thompson said a package of mixed fruit would remain subject to both sales taxes under the bill.

“If I go down to my local grocery store and I buy a watermelon, it’s tax free. If I buy a cantaloupe, it’s tax free,” Thompson said. “But if they cut it up and put it into a dish that’s ready to serve when I get home, I’m still going to pay sales tax on that.”

Under the bill, local counties and cities could also raise their sales tax rates after two years, which would offset the change in the state sales tax. Treat said that was up to local officials who “can make an extremely valid argument that if you want police, if you want fire, if you want ambulance, if you want city streets maintained, if you want sewer, if you want clean water, this pays for that.”

“I believe that local elected officials, the closest to our constituents, will be able to have those relationships to convince people that that’s the need,” said Treat, R-Oklahoma City.

The state sales tax change would save Oklahomans up to $418 million per year, but the actual savings for Oklahomans may be offset by rising inflation. While consumers may no longer pay the state 4.5 percent sales tax on some groceries, Treat acknowledged that in the last year inflation on groceries “rose by 4 percent.”

“That’s not even counting the hidden inflation by products becoming smaller, boxes becoming smaller, and people getting less for the dollar that they worked so hard to earn to be able to provide for their families,” Treat said.

While a change in grocery taxes may provide some financial benefit to individual Oklahomans, experts have noted that income-tax cuts provide much greater economic benefit because they encourage increased business investment and job creation, unlike sales-tax changes.

Treat admitted that a grocery tax “may not show up on a comparison of groups that look at business taxes and how do you get people to relocate and all that. It won’t show up.”

However, Treat said the grocery tax measure was advanced in his chamber, in part, because Democrats would support it.

Treat said he concluded “that I was going to have to put forth a proposal that could garner the most support, not only within the Republicans caucus, but within this chamber.”

While Democrats have steadfastly opposed pro-growth tax policies, such as cutting the personal income tax, they have supported lifting the state portion of the grocery tax off the sale of some food products.

Oklahoma House Democratic Leader Cyndi Munson of Oklahoma City said Democrats were “pleased the Oklahoma State Senate has finally taken action” and declared that HB 1955 is “accomplishing a goal House Democrats have been working on and supported for many years.”

While most Republicans supported the grocery-tax change, some openly said that one tax measure is not enough.

State Sen. Dusty Deevers, R-Elgin, said he supported exempting groceries from the state tax because it could provide some financial relief to families, but urged his colleagues to do more.

“I did come up here not just for lowering a grocery tax, but principally for getting the unjust taxation off of the backs of our people,” said Deevers, who recently won a special election. “And I do believe that we need to keep pushing beyond this and that the unjust tax is the income tax.”

He said the income tax is especially destructive to individuals’ freedom.

“In the income tax and the property tax the state is claiming ownership over the first fruits of people’s work and their property, meaning that before people support their own life and the life of their family, they must make their forced contribution to the state,” Deevers said.

One of Deevers’ colleagues voiced a similar view in a statement issued following Senate passage of the grocery-tax measure. State Sen. Julie Daniels, R-Bartlesville, praised passage of the grocery-tax cut but indicated more should be done.

“I am committed to continuing to work to implement tax reform, which I believe is critically important to the long-term prosperity of Oklahomans and our ability to attract new business to our state,” Daniels said.

HB 1955 passed the Senate on a 42-2 vote and proceeds to Gov. Kevin Stitt, who has promised to sign it into law. The repeal would not take effect until August at the earliest.

Stitt praised lawmakers for passing the tax cut, but also urged them to tackle additional tax measures, signaling support for the House plan to eliminate the personal income tax over time.

“I’m going to always fight for limited government and lower taxes, and I will still advocate to get us on path to zero income tax,” Stitt said.

Speaker McCall also praised senators for following the House’s lead on the grocery tax issue, noting House lawmakers approved the repeal nearly a year ago.

But McCall also stressed the need to make Oklahoma’s tax code economically competitive.

“There is continued work to be done to give Oklahomans back more of their hard-earned money,” McCall said. “While the grocery tax is a good first step, it is not the only action needed to accomplish that goal. The House always knew this legislation would pass if put up for a vote, and we feel the same way about the .25% income tax cut. The House would still like to see a vote taken on the income tax cut legislation that was passed to the Senate in special session and will continue to explore every opportunity to lower the tax burden for all Oklahomans.”

While Senate leadership has said the state cannot afford any further tax changes other than the grocery-tax exemption, after the passage of HB 1955 Treat said lawmakers in his chamber are ready to approve up to $1 billion in new spending this session.

“We have roughly $2 billion in cash sitting there that is unencumbered but also non-recurring,” Treat said. “We would feel comfortable spending half of that if we need to, if the needs were there.”