More than a year after Gov. Mary Fallin asked Oklahoma lawmakers to cut the state's top personal income tax rate, the Republican-controlled Legislature delivered.
Taxpayers, however, won't see the effect of the tax cut until about three years from now.
The House of Representatives passed a measure Wednesday that would reduce the top personal income tax rate as well as provide money to repair the state Capitol. The House voted 65-35 mostly along party lines to pass House Bill 2032. No Democrat voted for it and seven Republicans voted against it.
House members questioned and debated the measure for more than two hours. It came down mostly to Democrats saying the state can't afford a loss in revenue because of needs in public schools, mental heath, public safety, health care and other core issues while Republicans countered that a tax cut would stimulate the economy, mostly by businesses relocating or adding jobs to the state.
Cut is questioned
House Minority Leader Scott Inman, D-Del City, said the income tax cut bill was fiscally irresponsible because of the needs of common education and higher education, a waiting list for services for people with developmental disabilities and overcrowded and understaffed prisons.
He also said it was too hard to predict whether the state could afford a tax cut 18 months in advance.
Rep. Scott Martin, who presented the bill on the House floor, said that in the past 15 years the top personal income tax rate has been reduced from 7 percent to 5.25 percent, or a reduction of about 25 percent. During that same time period Oklahoma has seen a 47 percent increase in personal income tax revenues, from $1.9 billion to $2.8 billion.
“There's nothing on the horizon right now to suggest our economy is getting ready to tank,” he said.
The bill was delayed going to the governor, who has said she would sign it. Martin, R-Norman, used a parliamentary procedure to hold the bill so he could bring it up for another vote on the emergency clause. Without the clause, money for Capitol repairs won't be available until Nov. 1; passage of the clause would make the funds available July 1, the start of the 2014 fiscal year.
The emergency clause requires two-thirds support, or 68 votes, to pass. It failed, 64-33.
Most would benefit
Fallin asked legislators during her State of the State address in February 2012 to cut the personal income tax. She presented one of several proposals; legislators adjourned last year without passing a tax cut in the personal income tax rate. Fallin repeated her plea again when this year's legislative session began in February.
HB 2032 would reduce the state's top income tax rate, which most residents pay, to 5 percent from 5.25 percent effective Jan. 1, 2015.
Martin said about 62 percent of taxpayers would see a benefit by paying less in income taxes; none would see an increase.
Cutting the rate to 5 percent would save the average taxpayer about $88 per year and cost the state an estimated $130 million annually when fully implemented, Martin said.
Democrats figured the average savings to be 22 cents a day; Rep. Mike Brown, D-Tahlequah, said it would take two people to combine their savings to buy a pack of gum.
The earliest taxpayers would see any savings from the measure would be in early 2016 when taxpayers file their income tax returns for the 2015 calendar year.
“This isn't a tax cut,” said Rep. Mike Reynolds, R-Oklahoma City. “This is a nothing.”
The bill also calls for lowering the personal income tax rate to 4.85 percent if total revenue growth in the 2016 fiscal year is equal to or greater to cover the cost of the additional 0.15 percent personal income tax cut, or about $40.5 million.
One subject or two?
Altogether, the savings for the average taxpayer would be about $140 per year and cost the state about $237 million a year when both cuts are fully implemented, Martin said.
By delaying the income tax cut, lawmakers will have more funds available to set aside to repair the Capitol. The bill calls for $60 million to be allocated for the 2014 fiscal year, which begins July 1, and $60 million would be earmarked for the 2015 fiscal year for repairs to the Capitol, which has had flakes of its limestone exterior falling off the past few years.
House members also questioned whether HB 2032 violates the Oklahoma Constitution, which requires bills to contain one subject.
“This bill has two topics in it,” said Rep. Joe Dorman, D-Rush Springs. “It is going to the (state) Supreme Court. It is going to get thrown out.”