The House failed to take up three Senate personal income tax-cutting bills by Thursday's deadline, meaning legislators will have two proposals to consider before the session ends late next month that call for reducing and gradually eliminating the tax.
The two remaining bills, which include a proposal from Republican Gov. Mary Fallin, call for a cut next year in the top personal income tax rate ranging from 0.3 percentage points to 1.75 percentage points. But House Speaker Kris Steele said it's too early to come up with a proposed cut for the Republican-controlled Legislature to consider for 2013 and whether the legislation would provide a formula for gradually eliminating the income tax.
“Obviously we just need one vehicle at the end of the day,” said Steele, R-Shawnee. “I still believe we're going to see an income tax reduction and we'll see income tax reform this session.”
House Democrats said Thursday they would oppose any proposal to cut the personal income tax and questioned the wisdom of reducing a key revenue source if natural gas prices continue to decline. If natural gas drops below a monthly average of $2.10 per 1,000 cubic feet, the gross production tax that the state collects drops to 4 percent from 7 percent; the monthly average so far is just under $2.
“We need to be treading very cautiously in any kind of significant cut to the income tax we believe will be very detrimental and could be maybe even worse with the decline in those gross production tax revenues,” said House Minority Leader Scott Inman, D-Del City.
The state Board of Equalization in February used $3.64 per 1,000 cubic feet in determining revenue expectations for the 2013 fiscal year, which starts July 1. If the amount comes in $1 below that amount for the entire fiscal year, it would result in an annual loss of $70 million, a spokesman for the state treasurer's office said. The gross production tax on natural gas is projected to bring in about 3 percent of the $6.6 billion lawmakers will appropriate for the 2013 fiscal year.
Preston Doerflinger, Fallin's Cabinet secretary of finance and revenue, issued a statement Thursday saying the lower natural gas prices will not lead to a budget hole for the 2013 fiscal year.
Record sales tax collections are making up for lagging natural gas collections, he said. High oil prices are responsible for a boom in the oil industry.
“There's no reason to expect a slowdown anytime soon as industry experts, economists and the federal government are projecting oil prices will continue to increase in fiscal year 2013, perhaps $10 to $15 per barrel higher than the figure used in our official state estimate,” Doerflinger said.
Thursday was the deadline for the House to take up Senate-originated bills.
The two measures remaining alive are House Bill 3061, which contains Fallin's proposal, and HB 3038, which is a scaled-back version of a proposal supported by Arthur Laffer, an economist who gained prominence as a member of former President Ronald Regan's economic policy advisory board.
HB 3061 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 percentage point in any year in which the state sees 5 percent revenue growth.
HB 3038, which proposed cutting the state's top personal income tax rate of 5.25 percent by 3 percentage points next year down to 2.25 percent, has been changed to reducing the tax rate by just 0.3 percentage points next year to 4.95 percent. It originally called for continuing to reduce the personal income tax rate by 0.25 percentage points each year until the tax was eliminated in 10 years; it now calls for additional reductions of 0.25 percentage points only if the state has experienced 5 percent revenue growth in sales, use, motor vehicle and corporate income taxes.
Both bills are headed to a conference committee, which will come up with a final recommendation.
House Democrats, holding their fourth news conference in as many weeks to oppose reducing and eliminating the personal income tax, warned that cutting and eventually eliminating personal income taxes will not only mean less money for state services, but could result in increasing local property and sales taxes as state funds dry up for counties and public school districts.
The personal income tax brings in about 30 percent of the money legislators appropriate. House 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.
Proposals not taken up by the House were:
• Senate Bill 1437, which would have reduced the top personal income tax rate of 5.25 percent by half a percentage point to 4.75 — a quarter percentage point in 2013 and a quarter percentage point the following year. It also included 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, which would have reduced the top personal income tax rate to 4.75 percent over a two-year period, a quarter percentage point in 2013 and a quarter percentage point the following year. It would have reduced corporate income taxes from 6 percent to 5 percent next year.
• SB 1571, which would have reduced the top personal income tax rate of 5.25 percent to 2.5 percent in tax year 2013. Income tax rates would have been cut by an additional quarter percentage point in any year in which the state sees 2.5 percent revenue growth.