An agreement to cut the state's top personal income tax rate of 5.25 percent down to 4.8 percent next year was announced Thursday evening by GOP legislative leaders and Gov. Mary Fallin.
The plan, reached after two weeks of intense negotiations, also includes a one-time additional tax cut tied to a revenue growth trigger in the 2015 fiscal year.
If state revenue grows by at least 5 percent in that year, the income tax rate would be reduced further to 4.5 percent effective Jan. 1, 2015, but if revenue doesn't grow by that amount, the tax rate would not change. The 5 percent trigger is based on the growth of personal income, sales, use, motor vehicle and corporate tax collections.
The deal was announced after a day of meetings, including the governor talking to the GOP House caucus. Senate Republicans at first didn't embrace the plan, but about noon asked to resume talks. The talks continued until the agreement was announced about 6:30 p.m.
“We believe that cutting the state's income tax must be a priority and must be accomplished this year,” Fallin said. “We believe as a Republican caucus that allowing the people of Oklahoma to keep more of their hard-earned money is not the only right thing to do but also will help our Oklahoma families.
“It's the taxpayers' money, not the government's money,” she said. “We want to let more Oklahomans keep their hard-earned money.”
Fallin said it's estimated most Oklahomans will see a reduction in how much they pay in state income taxes.
House Speaker Kris Steele, R-Shawnee, and Senate President Pro Tem Brian Bingman, R-Sapulpa, said they expect legislators to approve the plan. Republicans have a 67-31 advantage in the House of Representatives and a 32-16 majority in the Senate.
With a decision on cutting the income tax rate out of the way, GOP legislative leaders and Fallin now will work on developing a $6.6 billion budget for the 2013 fiscal year, which begins July 1. They said a deal on the budget should come quickly, possibly Friday or this weekend. Lawmakers are required to adopt a budget before adjourning. They must complete their work by 5 p.m. May 25.
More about the plan
The proposal also simplifies the tax code by dropping the total number of tax brackets from seven to three. New rates will be set at 1 percent, 3.3 percent and 4.8 percent, Fallin said.
The agreement represents a tax cut of more than $218 million to taxpayers when fully implemented in the 2014 fiscal year. It would cut taxes by an additional $121.4 million in the 2015 fiscal year should the growth trigger be reached, Fallin said.
Lost revenue is partially offset by eliminating 33 tax credits, certain deductions and eliminating the personal exemption for single filers making more than $35,000 and joint filers making more than $70,000. No major economic tax credits are being eliminated; retirement and veteran tax exemptions for individual taxpayers are safe.
The plan leaves alone credits available to low-income taxpayers, such as earned income credits, child and child care credits and sales tax relief credits.