Gov. Mary Fallin signed a conditional tax cut bill Monday calling for a gradual reduction in the state’s top personal income tax rate from 5.25 to 4.85 percent.
The two-tiered tax cut is designed so that increases in the state’s general tax revenues must take place before the tax cuts will take effect. Tax year 2016 is the earliest Oklahomans could see a tax cut under the new law.
“This is a responsible, measured tax cut that will make Oklahoma more economically competitive while providing much-needed tax relief to working families,” Fallin said in a news release. “If Oklahoma wants to attract and retain good jobs – rather than losing them to neighboring states – we must improve our tax climate. I am proud that the Legislature has taken action to do so and I am happy to sign this bill into law.”
The new law will reduce the top personal income tax rate from 5.25 to 5 percent in tax year 2016 or later. The first tax cut will kick in as soon as annual general revenue fund collections are greater than projected fiscal year 2014 collections.
If revenue growth continues, a second reduction would take place, lowering the top rate to 4.85 percent once state revenue increases are sufficient to cover the cost of the additional reduction. The earliest the second reduction could take place is two years after the 5 percent rate is enacted.
“This tax cut will put more than $200 million annually into the economy and make Oklahoma a better place to do business, meaning more opportunities and jobs for Oklahoma families and more revenue for core government services,” Fallin said.
The governor’s office noted that Senate Bill 1246 affects Oklahoma’s top income tax bracket, which applies to individuals earning more than $8,700 a year or couples earning more than $15,000 a year.
The Tax Commission estimates that approximately 1,726,000 taxpayers will be placed in the top income tax bracket in tax year 2016. About 63 percent of all tax returns would be expected to benefit from the tax cut at that time, providing state revenues increase enough for it to be implemented, the governor’s office said.
The average tax cut at the 4.85 percent rate would be $158 per year, the governor’s office reported.
“Most Oklahomans will receive a tax cut from this legislation,” Fallin said. “But every Oklahoman will benefit from a stronger economy and a state that is more attractive to work, live and invest in. Senate Bill 1246 responsibly lays the foundation for sustained economic growth, job creation and the long term growth of state revenue.”
Several lawmakers debated against the tax cut, contending the state has pressing needs that should be addressed first.
“State employees, many of whom qualify for food stamps, haven’t seen a pay raise in six years,” said House Minority Leader Scott Inman, D-Oklahoma City. “The Capitol is crumbling down around us.”
However, the governor and many other Republicans say Oklahoma tax cuts historically have spurred economic activity. Tax cuts enacted in 1998, 2005 and 2007 all were followed by state tax revenue increases that far exceeded projected lost revenue to the state, the governor’s office reported.