WASHINGTON — The “fiscal cliff” deal supported by most of the Oklahomans in Congress will mean higher income tax rates for only a small percentage of Oklahoma taxpayers, though nearly 2 million workers in the state will have smaller paychecks because of an expiring tax cut that wasn't part of the negotiations.
The deal approved by Congress late Tuesday calls for higher tax rates on individual income above $400,000 and family income above $450,000. Taxpayers with that level of income will also pay a higher rate on capital gains and dividends.
Internal Revenue Service figures available for the 2010 tax year do not provide a breakdown for Oklahoma incomes at those specific thresholds. However, the figures show there were 7,231 Oklahoma households with adjusted gross incomes above $500,000 in 2010. That is out of nearly 1.6 million returns filed in Oklahoma that year.
Most Oklahomans were shielded from higher income tax rates, and thousands of low-income and middle-class families will still be able to claim refundable credits for dependents and college expenses.
But the two-year reduction in the payroll tax — which funds Social Security — was allowed to expire with little fanfare, meaning most wage earners will have less money to spend beginning this week.
The reduction, from 6.2 percent to 4.2 percent, amounted to an annual tax break of $1,000 for a family making $50,000. The average tax cut for 1.9 million Oklahomans was $579, according to the White House. Overall, it was worth $1.1 billion in total tax relief in the state.
Reps. James Lankford, R-Oklahoma City, and Tom Cole, R-Moore, said Wednesday that extending the payroll tax cut was never part of the “fiscal cliff” negotiations about tax policy.
“It was meant to be a stimulus, so neither side contested it because you do have to fund Social Security,” Cole said.
Republicans, he said, had been reluctant to cut the tax two years ago because they knew it would have to be restored to ensure Social Security's financing.
Cole, among the six members of Oklahoma's congressional delegation who voted for the deal on Tuesday, said “there were enough good things in the bill to override the things I don't like.”
“Contrary to what's widely reported, there were no tax increases in the bill,” Cole said. “The tax cuts of the Bush era were all set to run out. What we did in the bill was save as many of them as we possibly could for as many people as we could. … That's 85 percent of the money for 98 percent of the people. I think that was the appropriate thing to do.”
Sen. Jim Inhofe, R-Tulsa, said the deal “should be seen as a victory for conservatives as it achieves for the first time in decades a bipartisan agreement for permanent tax cuts for a majority of Americans. These tax cuts will help to restore certainty and encourage economic growth.”
Lankford was the only Oklahoma member to vote against the deal. In an interview Wednesday, he acknowledged that there were several positive aspects about the bill but said that he couldn't support it because it didn't provide enough deficit reduction.
“The tax increases that were just put in place will increase taxes by about $60 billion a year,” Lankford said. “That still leaves almost a trillion dollars in overspending every single year. So it's obvious this is not a tax fix.”
Cole and other lawmakers said fights over spending will come in the next few months.
“Now it's time for the president to work with Congress to address our $16 trillion dollar debt and find responsible, commonsense ways to cut spending and grow our economy,” said Rep. Frank Lucas, R-Cheyenne.