OKLAHOMA CITY (AP) — Gov. Mary Fallin moved a step closer Wednesday toward her goal of having a bill on her desk this year that reduces the state’s personal income tax after the Senate easily approved slashing the top rate to 5 percent.
Fallin has long championed the need to reduce income taxes as a way to improve the state’s business climate, and she is hoping to avoid a repeat of last year, when she and legislative leaders announced a deal on a tax cut only to see the proposal fall apart in the waning days of the legislative session.
The bill approved 32-14 by the Senate, mostly along party lines with Democrats opposed to it, would drop the top personal income tax rate to 5 percent from 5.25 percent in January 2015. A second cut to 4.85 percent would come in 2016 if state revenues continue to rise.
The measure now heads to the House, where it’s also expected to pass.
This year’s proposal is much simpler than Fallin’s from 2012, which involved a deeper cut of nearly 2 percentage points and the elimination of dozens of tax exemptions, deductions and credits. And with a new House speaker and a stronger Republican majority in the House, even critics of the proposed tax cut acknowledge the current bill is almost certain to end up on the governor’s desk.
“It looks to me to be a more clearly defined agreement than what they had at the end of last session, so I would assume that this unfortunate bill would become law,” said Senate Democratic Leader Sean Burrage, who argued the bill will take away much needed revenue for education and other critical state services. “It’s easier for them to pass because they haven’t paid for it.”
Last year, Fallin attempted to offset much of the revenue lost from her proposal by eliminating various exemptions, deductions and credits, and her plan began to fall apart when lawmakers balked at getting rid of many of those under pressure from lobbyists hired to keep them in place. She unveiled a much more modest approach this year in her State of the State address to the Legislature: a drop in the top rate from 5.25 percent to 5 percent, effective in January.
“We ended up with something a little different than that, but still much simpler and cleaner than the plan we had last year, which was more of a total overhaul of the tax code,” Fallin’s spokesman Alex Weintz said.
The Senate had pushed this year to include some changes to state tax credits in the bill, but those were ultimately left out of the agreement in an effort to ensure passage.
“We’ve separated the conversation about tax credits and tax cuts,” Weintz said. “The governor still supports looking at tax credits and is hopeful we will this year.”
The Senate did manage to delay implementation of the initial cut until 2015, and the bill includes a provision that dedicates $120 million of the income tax revenue collected over the next two years to a fund that would pay for repairs to the state Capitol.
The initial drop in the top rate to 5 percent is expected to have a fiscal impact of about $136 million annually when fully implemented, while the second reduction to 4.85 percent would bring the overall annual cost to $237 million, according to state finance officials.
The savings on the average Oklahoma tax return would be about $82 at 5 percent, and $143 at 4.85 percent, according to the Oklahoma Tax Commission.