In her State of the State address, Fallin said she wants to cut the state’s highest income tax bracket from 5.25 percent to 3.5 percent beginning next January, and proposed that couples earning $30,000 or less would not pay income taxes. Couples earning between $30,000 and $70,000 would be taxed at 2.25 percent.
Her plan would shrink the number of income tax brackets from seven to three and impose a revenue-growth trigger that would further reduce the income tax by one-quarter of 1 percent each time state revenues grow by at least 5 percent.
The Republican governor said the proposal would “immediately cut income taxes for Oklahomans in all tax brackets, it will simplify the tax code and will chart a course towards the gradual elimination of our income tax.
“It will give Oklahoma the lowest income tax rate in our region, besides Texas, making us a more competitive state for job creation and retention.”
Oklahoma currently has seven tax brackets ranging from 0.5 percent for single taxpayers earning $1,000 or more in taxable income to the top rate of 5.25 percent on taxable income of more than $8,701.
While she didn’t offer specifics in her speech, her budget officials said the plan calls for making up the estimated $1 billion in lost revenue by eliminating nearly 40 different tax credits, including the child care and sales tax relief credits for low-income Oklahomans. It would also end personal exemptions claimed by about 1.5 million Oklahoma tax filers each year.
“Low-income families with children and low-income seniors will pay more in income tax. That’s a concern,” said David Blatt, director of the Oklahoma Policy Institute, a Tulsa-based think-tank. “It’s cut taxes first and then ask questions later.”
Democrats also blasted the plan, saying it makes little sense for Fallin to call for increased funding for transportation, education and performance audits for state agencies while endorsing a plan to slash a funding source that accounts for more than one-third of state revenue.
“Gov. Fallin cannot expect to cut and then eliminate the state income tax, which constitutes one-third of the state’s revenue,” said Rep. Mike Brown, D-Tahlequah, “and in the same breath, talk about making the Department of Human Services one of the best in the nation, or repairing all our bridges by 2019.”
Fallin’s chief policy advisor, Secretary of State Glenn Coffee, acknowledged that many low-income Oklahomans would receive fewer benefits under Fallin’s tax proposal, but he said many of the families earning less than $30,000 a year already have no tax liability and currently receive a small subsidy as part of the sales tax or child care exemptions.
“In a number of those cases, there are individuals who we are in effect paying them to file a tax return,” Coffee said. “What this plan does is zero that out. It makes a policy statement that if you don’t owe taxes, you don’t owe taxes, but we’re not going to use this as a tool to write you a check.”
Coffee estimated that at least half of the couples earning $30,000 or less would have the same tax liability or be better off under Fallin’s plan, while between 70 and 80 percent earning between $30,000 and $70,000 would benefit from the plan.
House and Senate leaders in the Republican-controlled Legislature did not immediately endorse Fallin’s plan, saying they needed more time to review it and a myriad of other tax-cutting measures that are being offered.
Senate President Pro Tem Brian Bingman, R-Sapulpa, said, “I’m willing to look and see what’s best for Oklahoma, and certainly the governor has … some ambitious goals in her plan.”
House Speaker Kris Steele, R-Shawnee, said he’s eager to begin reviewing the details.
“All income tax plans will get careful consideration as we determine the best way to achieve a growth-spurring, responsible tax reduction,” he said in a statement.
Fallin also decried the state’s poor health rankings in her 49-minute speech and announced Monday that she had signed an executive order to prohibit tobacco use on all state property, beginning in July. She said she plans to close a smoking room at the state Capitol and convert it into a small fitness center.
Fallin also urged lawmakers to approve a bond issue that would help pay for an estimated $140 million in necessary repairs for the state Capitol, which currently has pedestrian barricades erected outside the building’s south steps after engineers determined pieces of mortar and limestone façade were falling off. She called the state of the building “embarrassing.”
“It is our responsibility to maintain this building, which is a symbol of Oklahoma and its people, and that requires proper funding,” Fallin said.