State leaders met for months to discuss eliminating dozens of tax breaks, but under intense lobbying from special interest groups, legislators appear unwilling to make significant changes in tax credits and incentives, key lawmakers said Wednesday.
“There is no question that we started out bold in seeking legislation to do away with the credits,” said Rep. Earl Sears, R-Bartlesville, chairman of the House Appropriations and Budget Committee.
“Unfortunately that has just not been the case. Members have found that the credits that we thought maybe needed to go away, in their particular district or in their particular region, continue to make an impact. It has just not been that easy. So these hundreds of millions of dollars we thought we'd review and eliminate, has just not come to reality.”
That's not necessarily a bad thing, said Gwendolyn Caldwell, senior vice president of government affairs for The State Chamber.
“We felt it was very important to make sure that the business side of the tax credit issue was explained, what good things these tax credits bring, the jobs, the investments, the growth in Oklahoma,” Caldwell said.
“We've been supportive of the process. We've been supportive of the analysis.”
Income tax vs. tax credits
There was a glut of plans introduced in February to reduce the personal income tax in Oklahoma.
And almost all of those included the elimination of a number of tax credits and incentives. Gov. Mary Fallin provided a list of 44 tax credits and incentives she sought to eliminate with her tax-cut plan when it was first introduced.
But Rep. David Dank, R-Oklahoma City, said the reality three months later is that likely none — or very few — of those will be cut. Lawmakers are meeting behind closed doors this week to hammer out the details and compromises of two tax reduction bills that are still alive.
“That's not to say that there aren't members who want to do that,” Dank said. “The will of the Legislature just isn't there.”
Dank was chairman of a committee that met 10 times last summer in an effort to evaluate the state's tax incentive and credit system.
“The lobbyists are pretty much driving the train on the tax credits,” Dank said, noting specifically the efforts of wind energy, historic rehabilitation and coal production attempting to keep their tax credits.
“I had some of (the lobbyists) tell me last year they were retained for the session, but then were hired to stay on for the whole year because of our study.”
Sears described the lobbying effort as intense and effective this year to keep the tax credits on the books.
Cash in hand
There's a significant amount of money on the table.
Tax credits and incentives are significantly different from a tax write-off or exemption. If something is tax exempt — for example the interest individuals pay on their mortgage — then they get to not pay taxes on that amount of money.
Tax credits in Oklahoma, however, are a one-to-one payback in tax liability. So a $5,000 tax credit is $5,000 in the pocket of the person with the credit, as long as they have paid or owe at least $5,000 in taxes.
Credits for income taxes alone allowed companies and individuals to claim $225 million for fiscal year 2011, according to data from the Oklahoma Tax Commission. Not all of those were paid out, however, as a company or individual must have to pay enough taxes to cover the amount of credit.
Many corporations, small businesses and individuals don't pay any state income taxes, instead using the lucrative tax credits to get back all or some of the money they've paid into state coffers.
Caldwell said some of those incentives are vital to the Oklahoma economy.
Specifically she said the chamber was concerned that the following tax credits appeared on lists for elimination: the tax credit on Oklahoma investment and new jobs, the credit on electricity generated by zero emissions facilities and the credit for qualified historic rehabilitation expenditures.
“Those were all on one list or another, and that caused us a lot of concern,” Caldwell said.