Governor Fallin’s tax cut would do little to nothing for the average Oklahoman

by | February 18th, 2013 | Posted in Blog, Taxes | Comments (1)
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In her State of the State address, Governor Fallin unveiled yet another proposal to cut Oklahoma’s income tax. Her plan is drastically scaled back from last year’s proposal, which attempted to stretch out Oklahoma’s tax brackets, cut the top rate in half, and eliminate dozen of tax credits, exemptions, and deductions. This year, the Governor proposes simply repealing the top rate without identifying how it will be paid for.

So how would this latest proposal affect Oklahomans’ taxes? The Institute on Taxation and Economic Policy calculated how repealing the 5.25% rate would affect Oklahomans at different income levels. They found that 43 percent of households would receive no tax cut at all. Among households that did receive a tax cut, the median benefit would be just $39. The chart below shows the average tax cut by income level:

average-tax-cut-2

  • Only 4 percent of households with incomes less than $18,200 would see any change in taxes; those who did receive a cut would see an average tax reduction of $4;
  • Out of households with incomes of $18,200 to $33,500, 42 percent would receive a tax cut averaging $16;
  • Just over two-thirds of those with incomes of $33,500 to $53,200 would receive tax cuts averaging $39;
  • Those with incomes of $53,200 to $89,100 would receive an average cut of $83.

Because the effect on the wealthiest 20 percent of households cover such a wide range, it’s instructive to break them into smaller groups.

  • The bottom 15 percent of the top 20 percent (incomes of $89,100 to $175,900) get an average of $161;
  • The next 4 percent ($175,900 to $392,800) get an average of $334;
  • The top 1 percent (households with incomes higher than $392,800k) receive an average of $1,870.

We can also look at how much of the total tax cut would go to each income group:

share-of-tax-cut-2

 

Overall, the bottom 60 percent of the Oklahomans would receive just 9 percent of the benefit from this tax cut, while the top 5 percent would receive 42 percent of the benefit. Due to regressive sales taxes and property taxes, lower- and middle-income Oklahomans already pay the biggest share of their incomes in state and local taxes. By giving almost all of the benefits of this cut to a small group of already wealthy Oklahomans, the Governor’s proposal would make this imbalance even worse.

When fully phased in, the tax cut would also reduce state revenues by more than $100 million per year. Meanwhile, Governor Fallin’s budget offers almost no new money for common education, which has been cut hundreds of millions of dollars over the past few years while dealing with rising class sizes and unfunded new mandates. It does not fund the corrections reforms that are desperately needed to get a handle on Oklahoma’s overcrowded, understaffed prisons. It does not provide any pay increase for state employees who have not received a cost-of-living increase since 2006, leaving our core services at a serious disadvantage when competing with the private sector for qualified workers.

Governor Fallin’s tax cut would do little to nothing for the average Oklahoma family, while reducing our ability to address Oklahoma’s real problems. If we want to pursue responsible tax reform that helps average Oklahomans while ensuring our schools and other core services have adequate revenue, there are much better ways to do it than another giveaway to those who need it least.

One Response to “Governor Fallin’s tax cut would do little to nothing for the average Oklahoman”

  1. Jim Bynum says:

    Our Governor is placating her base, the top 2% of people in Oklahoma. Working people would get nothing. We aren’t funding our state government now, wait until the sequester takes affect. People have to open their eyes to what the majority party is doing to this state. We need to turn them all out in 2014.

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