Okies Enjoy Largest Tax Cut in State History

Published August 1, 2005

More than one million Oklahoma taxpayers will receive tax rebates later this year, thanks to a historic $150 million tax cut measure passed by the legislature on May 29 and signed by the governor on June 8.

HB 1547 and SB 435 together provide the largest tax cut in Oklahoma history. The House bill reduces the top marginal individual income tax rate from 6.65 percent to 6.25 percent for the 2006 tax year and beyond, and provides for tax benefits for veterans who are 100 percent disabled as a result of their service.

The Senate bill increases the state’s standard deduction for taxpayers who do not itemize their deductions, from $2,000 to $4,000 over a two-year period.

Combined, a family of four with an income of $50,000 will save $225 under the two measures.

Medical Provider Tax Averted

In addition, Oklahoma lawmakers averted a proposed tax increase this year. Despite a massive lobbying effort for a medical provider tax aimed at bringing more federal Medicaid money to the state, the House of Representatives held firm and passed an alternative solution using part of the state budget surplus to fund the plan instead.

Grover Norquist, president of Americans for Tax Reform, commended the legislators who helped pass the tax cut package and held firm against higher taxes, and he reminded them not to forget the spending problem.

“From a taxing standpoint, this was a good legislative session for Sooners. But it is crucial that legislators also address the spending side of the equation,” said Norquist. “A spending increase of 11 percent, as just happened, is not sustainable long-term. Fortunately, those forces in the legislature who wish to put in place a constitutional tax and expenditure limitation are gaining ground.”

TABOR in Works

Norquist was alluding to efforts to implement a Taxpayer’s Bill of Rights (TABOR) amendment to the Oklahoma constitution. State Rep. Ken Miller (R-Edmond), who in January introduced the “Taxpayer Protection Act,” which would put in place constitutional limits for state spending and redefine how surplus funds can be spent, has initiated a legislative study to examine ways for Oklahoma to rein in state spending and control the growth of government.

The study will include recommendations to the legislature.

“Though the other side is able to get some targeted tax hikes on the ballot [tobacco tax and fuel tax, for example] it is very difficult for the legislature to raise taxes,” said Brandon Dutcher, vice president for policy at the Oklahoma Council of Public Affairs. “It’s the tax cutters who have the momentum, and they’ll be back next year for another whack at the income tax and also the death tax. Better still, TABOR continues to be an issue that will not go away.”

Not All Smiles

Not everyone in Oklahoma is happy about the tax cut. A number of groups, ranging from the Oklahoma chapter of the American Federation of Teachers to AARP, lobbied fiercely against the tax cut package. One of the biggest critics of the tax cut, David Blatt from the Community Action Project of Tulsa County, blasted the package as irresponsible.

“[The tax cuts] will result in a serious and permanent erosion in Oklahoma’s tax base, undermining our ability to provide adequate funding for essential state services,” Blatt said. “It was irresponsible to adopt permanent cuts on the basis of temporary surpluses without any projections of the state’s ongoing needs or the ability of the system to produce ongoing revenues.”

$900 Million Surplus Noted

State Rep. Kevin Calvey (R-Del City) rejected the criticism. “The complaint that Oklahoma cannot ‘afford’ tax relief is ludicrous,” he said. “Of the $900 million surplus in Oklahoma this year, only $150 million, or about 15 percent, is dedicated for tax relief. When fully phased in during later fiscal years, the tax relief is about $200 million. Government spending is still increasing by 11 percent more than I would like, but it was a compromise with the Democrat-controlled Senate.”

Calvey sees the problem as being on the spending side. “It is far more dangerous for budgeting purposes to increase government spending than to cut taxes. If a downturn occurs, and the state cannot balance, it is difficult to cut government programs that people have come to rely upon. It is far better fiscal policy to restrain government growth and keep enough Rainy Day funds to accommodate a temporary downturn.”

Cuts Came After Party Change

The tax cut package passed only months after Republicans took control of the House of Representatives, which they had last controlled in 1921-22.

Said Calvey, author of the House bill, “The GOP took control of the State House in Oklahoma last election for the first time in over 80 years. The Democrats in the Senate see the writing on the wall, so they compromised on tax relief, which they have been reluctant to do until now.”

Dutcher agreed. “There is no question that the GOP pushed through the income tax rate cut. Gov. [Brad] Henry (D) is no fan of rate cuts, but he is a big fan of living in the mansion. So with an eye to re-election, he thought it prudent to move to the middle and sign the tax cut bill, even though his base was aghast.”

Sandra Fabry ([email protected]) is state government affairs manager for Americans for Tax Reform.