Cutting and eventually eliminating Oklahoma's personal income taxes will not only mean less money for state services, but also could result in increasing local property taxes as state funds dry up for counties and public school districts, House Democrats warn.
“I'm convinced that when the income tax is eliminated in Oklahoma, those monies that were once used for roads and bridges and education won't be there from the general revenue fund,” said House Minority Leader Scott Inman, D-Del City. “The counties in order to fund their schools and roads will have to increase property taxes to make up the difference. An income-tax cut at the state level will invariably lead to a property tax increase at the county level.”
The state constitution forbids a statewide property tax, and lawmakers are not proposing to replace the money lost by reducing the personal income tax by increasing another tax. Personal income taxes bring in about a third of the state revenue that is appropriated by lawmakers.
Where plans stand
The Republican-controlled Legislature appears to be retreating on at least one plan to cut the personal income tax rate next year.
The boldest personal income tax-cut proposal, House Bill 3038, is a mere shadow of itself. The measure, which had more than 30 House co-authors, proposed cutting the state's top personal income tax rate of 5.25 percent by 3 percent next year down to 2.25 percent. It passed the Senate last week, but it now calls for reducing the tax rate by just 0.3 next year to 4.95 percent.
The measure, which has the support of Arthur Laffer, an economist who first gained prominence as a member of former President Ronald Reagan's economic policy advisory board, now goes to the House. It is expected to go to a conference committee, which also may take up four other income tax-cutting proposals that are progressing through this year's session.
The measure also originally called for continuing to reduce the personal income tax rate by 0.25 percent each year until the tax was eliminated in 10 years.
HB 3038 now calls for the additional reductions of 0.25 percentage points only if the state experienced 5 percent revenue growth in sales, use, motor vehicle and corporate income taxes.
Inman said the triggers provide some comfort that the income tax rate won't be cut in years the state sees an economic downturn or little economic growth. But the triggers are still risky.
“Make no mistake about it, any bill that has a trigger in it because of the way the triggers are established, it's a mathematical certainty that over a period of years the Oklahoma income tax will be abolished,” he said.
Speaker is confident
House Speaker Kris Steele, R-Shawnee, said he remains confident lawmakers will come up with a cut next year in the personal income tax rate. House and Senate budget talks are under way, and the governor's office is expected to join the discussion this week.
“I still believe we're going to be able to protect those core services of government that we think are important,” he said.
Core services have been identified as roads and bridges, public safety, education, human services and health. Those make up nearly 90 percent of the budget appropriated by lawmakers.
“We are serious about reducing the personal income tax rate and the overall tax burden on working Oklahomans,” Steele said. “I am committed to that. ... Income tax reform and reducing the personal income should be a very measured, a very logical and methodical approach.”
An income tax proposal and a budget for the 2013 fiscal year remain on track to be developed in a couple weeks, he said.
We are serious about reducing the personal income tax rate and the overall tax burden on working Oklahomans. I am committed to that. ... Income tax reform and reducing the personal income should be a very measured, a very logical and methodical approach.”