Cutting the state's top personal income tax rate, a move contained in legislation set to be signed into law this month, sends a strong message to businesses that Oklahoma is serious about providing tax relief for residents and businesses, Gov. Mary Fallin says.
“Lowering our taxes in Oklahoma will absolutely get the attention of businesses, not only here in our state, but businesses across our nation,” she said. “It helps us have a competitive advantage.
“It sends a very strong signal that we're not going to be raising taxes upon our businesses or upon our citizens, which makes us more attractive to do business and more attractive as a place to live,” Fallin said.
The governor said Oklahoma was caught between Texas, which has no personal income tax, and Kansas, which last year lowered its income tax rate last year from 6.45 percent to 4.9 percent.
“Now we'll have a much more competitive tax rate once the income tax cut goes into full effect in 2016,” Fallin said. “At a time when other states have been facing budget shortfalls, many have actually increased their taxes and balanced their budgets on the backs of families and businesses.”
House Bill 2032 passed the House of Representatives last week but is being held up by a parliamentary procedure to allow members to reconsider a vote on making the measure take effect as soon as the governor signs it.
The measure calls for reducing the state's top income tax rate, which most residents pay, to 5 percent from 5.25 percent. It takes effect Jan. 1, 2015. Taxpayers would first see the effect of the tax cut in 2016.
“It will put more money back into the bank accounts and pocketbooks of Oklahoma taxpayers, which will provide for much-needed tax relief to working Oklahomans,” Fallin said. “It will help spur job growth and create more revenue for our state.”
Backers of the tax cut said about 62 percent of the state's 1.6 million tax filers would see a benefit by paying less in income taxes. None would see an increase.
Estimates by the Oklahoma Tax Commission show that the tax cut would save the average taxpayer $82 per year and cost the state an estimated $136 million annually when fully implemented.
Personal income taxes bring in about one-third of the state's legislatively appropriated budget. For this fiscal year, personal income taxes are estimated to bring in $2.1 billion of the $6.8 billion budget.
Those with federal adjusted gross incomes of $25,999 or less would get back $8 or less, or nothing, according to the Tax Commission. Filers would have to have an adjusted gross income of at $80,000 to $99,999 to get back $108. Those with an adjusted gross income of $200,000 to $499,999 can expect a savings of $371 and those earning $1 million or more would get back $1,377.
Critics, mostly Democrats, said the tax cut is irresponsible because of needs of common education and higher education, a waiting list for services for people with developmental disabilities, overcrowded and understaffed prisons and raises for state workers.