DESPITE unified Republican control of both chambers of the Legislature and the governor's office, this may be the second consecutive year without a tax cut after the governor proposed one.
Legislative Democrats are on record opposing a tax cut, and have a surprising ally: Senate Republicans, who also oppose a tax reduction in 2014. The governor and House Republicans support a quarter-point reduction of the top rate (to 5 percent) starting next January.
Senate Republicans differ from Democrats in supporting a plan to lower the top rate to 4.75 percent in 2015 while also eliminating many individual and business tax breaks.
We've noted before the Senate bill goes after the personal exemption, allowing it for some filers but not others. Under the bill, a single mother with two children and income below $40,000 could lose a $3,000 write-off while a couple earning more than $70,000 with several children would get the exemption. The bill also would eliminate the child tax credit for families with income greater than $50,000.
The end result is a plan that would cut rates without necessarily cutting tax payments. In many instances, citizens' tax burden would increase. Oklahoma Tax Commission estimates illustrate the arbitrary results.
Between 16 percent and 22 percent of filers with income between $50,000 and $100,000 would face a tax increase under the Senate plan. Close to one in 10 earning between $34,000 and $50,000 would pay more. Some Oklahomans at nearly every income level would face a tax increase.
In addition, 31 percent of Oklahomans would see no reduction in tax payments.
The tax cut plan supported by Gov. Mary Fallin and House leaders doesn't increase anyone's taxes and ultimately would leave about $100 million annually in the private economy, making those funds unavailable for government spending. The Senate Republican plan would provide $108.7 million — but further down the road. Although Sen. Mike Mazzei, R-Tulsa, has described the Senate plan as cutting income taxes “by $250 million,” he left out the impact of the bill's tax offsets. The changes to the personal exemption alone would increase tax payments $128.3 million.
David Blatt, director of the Oklahoma Policy Institute, praises the Senate Republican plan as one that “acknowledges the need to maintain our revenue base and allow for adequate funding of public services.” But House Republicans will likely take the view of Rep. Leslie Osborn, R-Mustang. In a recent debate, she said, “In the real world of tax cuts, if you try to make a tax cut revenue neutral, it's not a tax cut.”
House lawmakers have already spiked bills seeking to eliminate business tax breaks. It's unlikely they will now embrace a measure denying many of their constituents the personal exemption while leaving intact a $5,000 tax credit for aerospace employees.
As a result, gridlock is likely and a tax cut is not.
The Senate Republicans' overly convoluted tax plan appears designed less for economic benefit than to provide senators with political cover. Senate Republicans have said they prefer to increase state spending next year, particularly on education. That's fine. Instead of passing a tax bill designed to offend many, Senate Republicans should simply make the case for prioritizing spending increases over a tax cut. That would be an honest debate, and the public would be better served.