, Muskogee, OK

Oklahoma News

February 27, 2014

Senate passes Oklahoma tax cut with trigger

OKLAHOMA CITY — The earliest Oklahoma taxpayers could see a drop in the state’s top income tax rate would be 2016, and then only if certain revenue collections increase, under a bill approved on Thursday in the state Senate.

All of the eight Senate Democrats in attendance voted against the plan, with their leader calling it an election year ploy. The measure heads to the House, which is considering a separate tax-cut bill that also has a trigger tied to revenue growth. The governor has been pressing for an income tax cut for three years.

The Senate-approved plan, which passed on a 32-10 vote, would cut the top rate from 5.25 percent to 5 percent once certified collections to Oklahoma’s General Revenue Fund increase by at least $86 million. That amount would return the state’s main operating fund to where it was last year when the Legislature approved a similar tax cut that was tossed out by the Oklahoma Supreme Court.

“From a mathematical standpoint, we’re not only waiting a year to allow the tax cut to kick in, but we’re tying that delay to a benchmark certification to make sure the revenue is at the same level we were expecting last year,” said Sen. Mike Mazzei, R-Tulsa, who answered questions about the bill on the floor.

The bill includes a second trigger that would further reduce the rate to 4.85 percent once certain state collections increase enough to pay for the lost revenue.

A 0.25 percentage reduction in the state’s top rate would cost the state about $147 million annually, according to an analysis by the Oklahoma Tax Commission. The savings on the average Oklahoma tax return would be about $85.

Senate Democrats argued it is foolish to pass a tax cut when legislators have no idea what the state’s revenue picture or financial obligations will look like in 2016.

“You can come back here next spring and have this debate and vote for a tax cut on Jan. 1, 2016, if that’s what you decide to do,” said Senate Minority Leader Sean Burrage, D-Claremore. “But no, this is an election year, and a re-election year, and I believe there are certain people in this building that need to go back to their districts and wave their hands in the air and say: ‘We have a tax cut. We have a tax cut.”’

But Mazzei said the state could expect significant revenue increases by 2016, including next year’s scheduled expiration of a generous tax incentive for certain types of oil and gas drilling.

The tax cut “will be occurring after the temporary 1 percent tax rate on horizontal drilling will have ceased, and the dollar amounts that come into the revenue stream off that could easily cover the entire cost of the tax cut,” Mazzei said.

Since taking office in 2011, Gov. Mary Fallin has wanted legislators to pass an income tax cut as a way to stimulate the economy and boost job creation. She renewed her call for a tax cut this year, despite the Legislature having about $188 million less to spend on state programs.

“I am open to any and all plans, including the measure passed by the Senate today, that responsibly reduce the income tax rate,” Fallin said. “I am pleased the Legislature is examining several different tax cut proposals and I encourage them to remain committed to passing a tax reduction measure this year.”

A separate House bill narrowly approved by a committee on Wednesday also includes a trigger that would cut the top rate from 5.25 percent to 5 percent, but only if income tax collections increase by enough to cover the estimated cost of the cut.

Newly elected House Speaker Jeff Hickman said his members haven’t had time for an in-depth review of the Senate proposal, but said there seems to be general agreement among House Republicans to wait until at least 2016 before implementing the cut. He said House Republicans also are discussing the possibility of a cut to the state’s corporate income tax rate.

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