Bill would raise taxes for 1 million low-income Oklahomans

As we pointed out in an earlier post, there is more than one way to cut taxes. We can do it in a way that mostly benefits those with the highest incomes, as is the case with cutting the top income tax rate, or we can provide relief to those who need the most help and who suffer most from the loss of public services.

The same is true when eliminating tax exemptions. Certainly some exemptions should be removed to ensure adequate revenues and a fairly shared tax burden. However, a bill on its way to the House floor goes far beyond those exemptions that cater to special interests. SB 517 would sunset twenty tax credits, including the Sales Tax Relief Credit, which is relied on by about one million low- and medium-income Oklahomans.

Poor Oklahomans already pay a larger share of their income in taxes than the wealthy due to sales and property taxes. In particular, the sales tax on groceries disproportionately affects low-income Oklahomans. According to the 2009 Consumer Expenditure Survey, the poorest 20 percent devoted nearly twice as much of their incomes to groceries as did the wealthiest 20 percent.

To partially ameliorate this burden, the Sales Tax Relief Credit provides $40 per person to households with a dependent child, senior, or person with disability status making up to $50,000, or others making up to $20,000. In 2008, the credit was claimed by about 850,000 Oklahomans.  It is projected to go to more than one million Oklahomans and have a $43 million impact by 2014, when SB 517 would cause it to expire.

Oklahoma is already one of only seven states that tax groceries at the full rate. If Oklahoma eliminates this credit, it would put us in the dubious company of just Mississippi and Alabama as the only states that provide no relief for grocery taxes.

This is especially troubling at a time when the legislature is moving forward to further reduce the top income tax rate. The poorest 40 percent of Oklahomans would receive no benefit from that tax cut, and they would bear all of the burden from the loss of the Sales Tax Relief Credit. If the legislature does not reassess its priorities, the result will be an unfair and and unnecessary transfer of wealth from the poorest to the wealthiest Oklahomans.

The bill passed the Senate with its title off, which means there will still be a chance to amend it in conference committee. Sunsetting several of the tax credits covered by SB 517 would be a positive step, but legislators need to hear that the Sales Tax Relief Credit is crucial for tax fairness and should be maintained.

Update:  For a final update on this bill, see Where Are They Now? Bills we kept our eye on