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Cutting Oklahoma state income tax could result in higher local property taxes, House Democrats say

Republican legislative leaders are still planning on reducing Oklahoma's personal income tax next year. Some proposals have been scaled back and discussions are under way with House and Senate budget negotiators.
BY MICHAEL MCNUTT Published: April 23, 2012

The House of Representatives and the Senate will take up the other four income tax-cutting proposals this week. Thursday is the deadline for both chambers to act on measures that originated in the other chamber.

Other proposals

• Senate Bill 1437 would reduce the top personal income tax rate of 5.25 percent by half a percent to 4.75, a quarter percent in 2013 and a quarter percent the following year. It also includes a trigger to further reduce the rate to 4.5 percent if the state sees revenue growth of 4 percent over and above fiscal year 2011 tax collections.

• SB 1623 would reduce the top personal income tax rate to 4.75 percent over a two-year period, a quarter percent in 2013 and a quarter percent the following year. It also would reduce corporate income taxes from 6 percent to 5 percent next year. It calls for eliminating 46 tax credits and the personal exemption deductions.

• HB 3061, which contains Gov. Mary Fallin's proposal, calls for reducing the number of brackets in the personal income tax code from seven to three. It calls for couples making up to $30,000 a year to pay nothing in state income taxes. Those making $30,000 to $70,000 a year would have a personal income tax rate of 2.25 percent. Families making more than $70,000 a year would see their rate drop from 5.25 percent to 3.5 percent. After the personal income tax cuts take effect in 2013, income tax rates would be cut by an additional quarter percent in any year in which the state sees 5 percent revenue growth.

• SB 1571 would reduce the top personal income tax rate of 5.25 percent to 2.5 percent in tax year 2013. Income tax rates would be cut by an additional quarter percent in any year in which the state sees 2.5 percent revenue growth.

Expected revenue

House Democrats continue to oppose reducing and gradually eliminating the personal income tax, which brings in about 30 percent of the money legislators appropriate. This fiscal year personal income taxes are expected to bring in about $1.9 billion of the $6.4 billion appropriated by lawmakers. That doesn't count nearly $800 million generated by personal income taxes that go to transportation, education and teacher retirement funds before personal income tax collections go into the general revenue fund, the main funding source for state government operations.

Democrats said it's premature for the state, which is seeing a gradual economic recovery after three years of budget cuts to most agencies, to lower the income tax. Reducing the income tax would result in less funding for public schools, which already are hard-hit by years of budget cuts. They also said it would result in a reduction of vital services, such as health care and upkeep of roads and bridges.

Backers of reducing the income tax say the lower rate will stimulate the state's economy by attracting businesses and allowing most residents to have more money per paycheck to spend.

Rep. Jeannie McDaniel, D-Tulsa, said her constituents have told her they don't want to see the income tax cut. She said she will be among several speakers at a rally scheduled for 6:30 p.m. Thursday at the field house at Edison Preparatory School. Public schools across Oklahoma are continuing to cut teaching positions as federal stimulus funds that were made available the past couple years are expiring and state funding for schools isn't being restored.

“The class sizes are bigger in Jenks, the class sizes are bigger in Tulsa and parents are really upset,” McDaniel said. “I have not had one person ask me to support any sort of tax cut at all.”

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.”

Kris Steele

Oklahoma House speaker, R-Shawnee

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