Budget & Tax

Oklahoma House continues to focus on income-tax repeal

February 26, 2024

Ray Carter

For the second time in two weeks, members of a state House committee have advanced legislation to gradually eliminate Oklahoma’s personal income tax.

House Bill 3674, by state Rep. Mark Lepak, R-Claremore, would cut the state’s top personal income-tax rate from 4.75 percent to 4.50 percent effective tax year 2024.

The bill also provides for the full elimination of the personal income tax over time by requiring future quarter-point rate cuts to occur whenever state revenue increases by $300 million or more. After the sixth rate reduction has taken place and the tax rate is 3 percent, the rate can then be reduced further by three-tenths of a point each year until the rate is zero.

The bill passed with little opposition and after only brief comments by Lepak describing the measure’s contents.

HB 3674 passed the House Appropriations and Budget Finance–Revenue and Taxation Subcommittee on a 6-1 vote that broke along party lines with Republicans in support and a Democrat opposed. The bill can next be heard by the full House Appropriations and Budget Committee.

It is the second income-tax elimination measure to advance in the Oklahoma House of Representatives this session.

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.

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

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

Under the bill, another 0.233333 percentage point would be shaved off every year that the 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 could be reduced further by 0.3 points each year until the rate is zero and the personal income tax is completely phased out.

HB 2949 also establishes a $1 per megawatt-hour tax on electricity produced by renewable power businesses to partially offset the revenue changes caused by the income-tax cut.

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

HB 2949 is now eligible for a vote on the floor of the Oklahoma House of Representatives.

State Rep. Jay Steagall, a Yukon Republican who also filed legislation this year to gradually eliminate the income tax, urged lawmakers to embrace the concept during the House Appropriations and Budget Finance–Revenue and Taxation Subcommittee meeting.

He noted the Oklahoma Constitution provides that “all persons have the inherent right to life, liberty, the pursuit of happiness and the enjoyment of the gains of their own industry.”

Steagall said the personal income tax runs counter to that promise since the government takes control of part of a citizen’s income before they enjoy the use of it, unlike consumption taxes such as sales tax.

“I’m excited to see this side of the rotunda take a look at ways to eliminate or even cut our state income tax,” Steagall said. “The discussion that we really need to be having as elected officials goes a little bit further than that. We need to take a look at what our state constitution actually says and what it provides for.”

He said gradual elimination of the personal income tax is achievable if lawmakers engage in responsible budgeting.

“The big question is how much government do we want to fund?” Steagall said. “And I think it’s our job, as we look at ways to be good stewards of the taxpayers’ dollars, is to also look at ways by which we could eliminate some of our expense.”