Almost two months after Oklahoma lawmakers ended their legislative session, the status of a state income tax reduction measure that is often pointed to as one of their top accomplishments is fraught with uncertainty.
Oklahoma taxpayers could get a small cut in their state income taxes beginning in 2016, but nobody can say whether that’s even likely to happen.
It’s all based on a complicated revenue-based “trigger” built in to the measure.
So complicated, in fact, that even state Treasurer Ken Miller, who holds a doctorate in economics, said it’s about as “clear as mud.”
“I just don’t understand the logic of a trigger,” he said Thursday. “There’s no economic reason to pass a measure today predicated on a future event, when one can simply wait for that event to occur and then preserve the flexibility. It’s difficult to explain the mechanics of the trigger and it’s certainly difficult to communicate to the taxpayers what their taxes are going to be.”
Of course, there could be some political logic in passing an income tax cut that doesn’t take effect until sometime in the future, and then only if certain qualifiers are met.
“I would say the triggers are probably better for politics than economics,” Miller said.
According to Tim Allen, deputy treasurer for communications and program administration, here’s how it works:
The Oklahoma Board of Equalization will meet this December to estimate state revenue for the 2016 fiscal year, which runs from July 1, 2015, to June 30, 2016.
If that revenue estimate is higher than the estimate for the 2014 fiscal year (certified by the board in February 2013), the top state income tax rate would drop to 5 percent from 5.25 percent in 2016.
As a point of reference, state officials who made the 2014 revenue estimate guessed too high.
Actual revenue came in 4.8 percent lower than the estimate. Corporate income tax collections were lower than expected. Actual revenue barely grew compared with the previous year.
There’s also a second trigger that could drop the top state income tax rate to 4.85 percent as early as 2018 if there is enough revenue growth to offset the amount that would otherwise be lost because of the additional tax cut.
Even if there are delays in meeting the qualifications of these triggers, year-over-year revenues have generally been increasing, so there is a consensus that eventually these qualifications will be met.
However, a legal challenge presents another potential hurdle.
Oklahoma City attorney Jerry Fent contends the Legislature violated the Oklahoma Constitution in the way it passed the bill. The last time lawmakers tried to pass an income tax reduction, he also sued, and the Oklahoma Supreme Court ruled that bill unconstitutional, setting the stage for this year’s legislation.
After this year’s passage of the state income tax reduction measure, Republican leaders praised the legislation and Democratic lawmakers were critical of the plan.
State Rep. Leslie Osborn, R-Mustang, House author of the bill, predicted it would help bring economic growth to the state. State Sen. Mike Mazzei, R-Tulsa, said the average tax savings per family with the initial 0.25 percent reduction would be about $85 and called it “good legislation for the citizens of our state.”
State Rep. James Lockhart, D-Heavener, had a decidedly different opinion, noting his daughter’s school couldn’t afford to replace 10-year-old, falling-apart textbooks.
“We can’t even buy textbooks in our schools, and we’re going to do this — bull!”
Meantime, as tempers have cooled and legislators have gone home, state officials and taxpayers alike are left to wonder when, or if, the state income tax rate will drop.
Miller declined to make a prediction.
“Fortunately for the state of Oklahoma your treasurer is not a gambler.”