Budget & Tax

Ray Carter | February 27, 2024

With grocery-tax reduction signed into law, focus turns to income tax

Ray Carter

Within minutes of Gov. Kevin Stitt signing into law repeal of the state portion of the state-local sales tax on groceries, he and House Speaker Charles McCall sent a message: There’s still more work to do on taxes.

Both Stitt and McCall voiced support for also cutting Oklahoma’s personal-income tax this year and putting it on the path to full repeal.

“We think we need to put Oklahoma on a path to zero,” Stitt said.

McCall, R-Atoka, called the grocery-tax change a “really big tax to eliminate,” but suggested more tax relief should be provided.

“I’m excited not only, today, for this bill, but for the opportunities that we have the rest of this session to talk about other ways to help the people of Oklahoma,” McCall said.

Senate President Pro Tempore Greg Treat, R-Oklahoma City, indicated that Senate Republicans were not on board.

“We did the maximum tax relief we thought we could do by delivering on the grocery sales tax,” Treat said.

That statement was in line with the Senate’s general opposition to tax cuts over most of the past two years with members of that chamber having refused to take up many tax cut bills approved by the House. The grocery-tax measure was passed out of the Oklahoma House of Representatives on March 21, 2023, but was not taken up by the Senate until Feb. 22, 2024.

Notably, Senate leaders also voiced similar objections prior to abruptly approving the grocery-tax change this month.

House Bill 1955, by McCall and 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. The bill will take effect 90 days after the Legislature adjourns this year’s session, which is constitutionally required by late May.

In a press release issued after the bill signing, McCall expanded on his earlier comments, declaring the grocery-tax change “a good first step towards helping ease the burden of inflation on Oklahomans, but it is not the only step needed to truly help our citizens.”

McCall noted several bills to “cut income taxes and change the tax structure of our state to be more favorable to our taxpayers” have been passed by the House and could be taken up by the Senate.

“These bills are equally as important, if not more so, than cutting the grocery tax, and they deserve to be heard and put up for a vote in the Senate,” McCall said. “In addition to bills already sent to the Senate, I have filed a number of tax relief measures this year that the House will be sending over as well.”

Since the passage of the grocery-tax bill, House lawmakers have advanced two bills from committee that would cut the personal income tax and put it on the path to elimination over time.

House Bill 2949, by McCall, would create a flat-tax system in Oklahoma with a rate of 4.4 percent.

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). 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.

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.

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.

At the signing of the grocery tax measure, Stitt endorsed the broad framework of the two House bills, saying officials could limit the growth of state government spending to 3 percent or tie it to an inflation index and use the remaining growth revenue to “gradually start giving tax cuts back to Oklahomans.”

Stitt noted states in the same general region as Oklahoma are leapfrogging the state when it comes to income-tax rates. Texas has no income tax, Arkansas recently lowered its tax, and states like Iowa and Nebraska are both lowering their income-tax rates also.

“If we don’t keep up with the states around us,” Stitt said, “we will get left behind.”

NOTE: This story has been updated since publication to include additional comments from House Speaker Charles McCall following the bill-signing ceremony.

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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