A year without tax cuts–almost

In the first year that Republicans fully control the Legislature, who would expect we’d have so little to report from the tax cut beat? The economy and a $600-plus million revenue shortfall, of course, were major factors in tax decisions. Legislators did not want to cut taxes and have to make the corresponding budget cuts in the same session.

We’re pleased our elected officials understood that state services are in a precarious position, even with our current revenue structure. We’re  even happier that they largely avoided the “easy” alternatives of making reductions that took place in later years or only affected local governments. Proposals to cut the income tax from 5.5 percent to 5.25 percent next year–regardless of the revenue picture–and to put more limits on the growth of property taxes, were both left on the shelf. So were elimination of the sales tax on groceries, reducing the 50-cent monthly 911 tax, and any number of sales and income tax exemptions.

Just a few tax changes lived to see the Governor’s desk. Here’s a rundown:

  • SB 318 “decouples” from federal tax changes in the stimulus bill,  most of which affected business income tax provisions. Under this bill, taxpayers will get a new federal deduction but have to add the same amount back to their Oklahoma income. The net result is no change in their Oklahoma taxes and no change in state revenues. This bill also exempts the first $600 of winnings at 4-H events from income taxes, exempts rural irrigation and conservation districts from paying gas taxes, and expands tax breaks for making films in Oklahoma.
  • SB 318 also increases revenue by authorizing more aggressive efforts to collect unpaid income taxes. Modifying income tax withholding by employers is estimated to add $27 million in revenue. Three other provisions–contracting for collection of some delinquent taxes, creating an Internet listing of delinquent taxpayers, and requiring delinquent taxpayers to pay collection fees, will generate an additional $17.2 million. These new revenues, which will be certified by the Board of Equalization in June, were appropriated as part of the FY ’10 budget.
  • SB 881 exempts all active military pay from the state income tax, starting July 1, 2010. This is not expected to affect FY’10 revenues, but the Tax Commission estimates a $12 million loss in FY’11. Over the long run, sponsors argue the bill will generate positive tax revenues as more military members choose Oklahoma as their home state. The provision ends in 2015 unless the Board of Equalization determines the net tax impact is positive.
  • SB 313 extends tax credits for oil and gas exploration three years. Our fact sheet describes these provisions, which cost the state an average of $68 million annually the last five years.
  • SB 938 creates the 21st Century Quality Jobs Act, which provides a new class of job creation that qualifies for payroll reimbursements.
  • HB 1953 extends one of the existing quality jobs programs to certain wind energy services.
  • HB 1949 expands income tax credits for clean-burning vehicles and support facilities to hydrogen fuel cell vehicles, public electric vehicle charging stations, and home compression units for natural gas vehicles, but removes M-85 ethanol vehicles from eligibility for credits.
  • SB 721 exempts payments made by the Defense Department for the death of a member of the armed services as well as income earned by the spouse of that member from state income taxes in the year of death.

Next year is an election year and state leaders now seem to share our expectation that revenue will be growing again. The tax cut tide can be expected to roll in again. Caution, however, should still be the watchword. Oklahoma already has among the lowest tax rates in the country. Cutting taxes further can only jeopardize our education, infrastructure, public health, welfare and safety and other essential state services.

ABOUT THE AUTHOR

Paul Shinn

Paul Shinn is a Budget and Tax Senior Policy Analyst with OK Policy. Shinn has held budget and finance positions for the Oklahoma House of Representatives, the Department of Human Services, the cities of Oklahoma City and Del City and several local governments in his native Oregon. He's also taught political science and public administration at the University of Oklahoma, University of Central Oklahoma, and California State University Stanislaus. While with the Government Finance Officers Association, Paul worked on consulting and research projects for the U.S. Environmental Protection Agency, the U.S. Department of Transportation, and several state agencies and local governments. He also served as policy analyst for CAP Tulsa. He holds a Ph.D. in Political Science from University of Oklahoma and degrees from the University of Oregon and the University of Maryland College Park. He lives in Oklahoma City with his wife Carmelita.

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