Fact Check: Floor debate on HB 1539 that would implement state income tax cuts if a certain revenue amount is raised 

Background: On Thursday, April 10, the Oklahoma State Senate rushed to pass House Bill 1539. HB 1539, authored by Rep. Mark Lepak, R-Claremore, is now back in the House. HB 1539 would trigger an income tax cut of 0.25 percent in any fiscal year that had a revenue growth of $300 million cumulatively compared to a base year. The following is a fact check of some statements made during the debate.

• Watch video of the April 10 floor debate [video link]

Statement: When Oklahoma cuts its income tax rate, the state will still see a growth in income tax collections and revenue.

Fact: Eliminating income taxes will not definitively increase revenue from income tax collections. Income taxes cuts cannot be directly correlated with increases in income tax collections or revenue growth. It is a complex dynamic with many factors impacting revenue growth, one of which could be income tax cuts.

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Statement: When asked who would benefit the most from HB 1539, the bill’s author said, “Oklahoma taxpayers.”

Fact: While true that Oklahoma taxpayers would see reduced income taxes if the state lowers the income tax rate, this response doesn’t address how the cuts impact residents by income level. This proposed income tax rate cut would benefit the wealthiest Oklahomans the most, while it would provide substantially smaller benefits to low- and middle-income households.

Low- and middle-income families see significantly smaller benefits from across-the-board tax cuts

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Statement: There is no connection between income tax cuts at the state level and increased property taxes, which are collected and remitted to local governments. Cuts in income taxes would not put pressure on localities to increase property taxes.

Fact: State revenue, especially income taxes, are used for local public school funding. When state revenues are decreased through income tax cuts, it could reduce funding available for public schools if lawmakers don’t prioritize education spending among competing priorities. If lawmakers reduce state spending, this would likely pressure local governments to raise property taxes to maintain adequate school funding.

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Statement: Income tax punishes people for working and decreases productivity.

Fact: Framing income taxes as punishment for workers is akin to saying putting gasoline in your car’s tank is punishment for being able to drive. Taxes are not punishment; they are the price of admission for a functioning and well-organized society. Oklahoma is among the states with the lowest overall tax rates. Relatedly, Oklahoma ranks among the nation’s lowest states for quality of life and health metrics.

As for the effect of income tax on productivity, the relationship between income taxes and productivity depends on many factors. These include the ease with which people can avoid the tax increases, the marginal change in taxes, and the trade off between work and leisure time. For example, if someone gets a tax cut and suddenly takes home more money, they might actually choose to work less. That’s because now they can earn the same amount without putting in as many hours. Also, most people don’t base their effort on tax rates. They work to support their families, to reach personal goals, or because they enjoy their job. Studies have shown no consistent link between moderate income tax rates and reduced productivity.

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Statement: These tax cut triggers could take effect in 1, 2, 3, or 5 years. We don’t really know. No one knows the economy.

Fact: This is true; there is no guarantee of when a triggered tax cut would be implemented. The uncertainty of when tax cuts could be triggered is not the advantage some legislators think it is. Legislation that creates triggered tax cuts puts the state revenue process on auto-pilot, leaving future lawmakers with little ability to adjust when economic downturns happen. This type of legislation brings significant uncertainty in the state budgeting process. Oklahoma has witnessed this first-hand when tax cut triggers forced lawmakers to declare a revenue failure twice during 2016.

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Statement: If the income tax is eliminated, we can continue funding core services through other sources.

Fact: Oklahoma’s other taxes are not enough to make up for the $5 billion revenue that income taxes brought in last fiscal year. The personal income tax alone makes up 1 of every 3 dollars of the state’s budget. When revenue is eliminated, there are only two options available for lawmakers: reduce or eliminate public services, or raise an equal amount of revenue from other sources. If lawmakers opted to fund essential services through other means, this would mean significantly increasing other taxes like sales taxes, gross production tax, motor fuel tax, and more. That is highly unlikely to happen given Oklahoma’s significant barriers to raising new revenue. If other taxes are increased, it would increase inequity in Oklahoma’s tax structure because they are largely regressive taxes. Instead, the state is more likely to cut services as a response to revenue reductions.

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Statement: We need to bring back the middle class, and this bill gives the middle class a break. We need a thriving middle class if we are going to serve the poorest among us because we can provide sustainable local jobs.

Fact: Across-the-board cuts to the income tax rate gives outsized benefits to the wealthy, not to Oklahoma workers with low- and middle-income jobs. A tax saving of $98, $400, or $1,500 to middle-income households is not going to trigger a wave of sustainable local job creation. Furthermore, helping the middle class should not be conflated with supporting the lowest income earners in Oklahoma. If we want to help the most vulnerable Oklahomans, the legislature should pass bills that provide targeted tax credits for low- and middle-income Oklahomans, make applying for benefits like SNAP, WIC, and LIHEAP easier, and increase the minimum wage – which would also benefit middle-income families.

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Statement: Income tax revenue is not our money, it is taxpayer money. Legislators do not represent services or agencies or state government. Lawmakers represent people to the state government who are saying, “We do not want to be taxed.”

Fact: Taxes are taxpayer money and taxpayers expect legislators to use that money to solve problems no one can fix alone. This includes creating safe communities, educating our children in high-quality public schools, having access to affordable health care, driving on well-maintained roads, and countless other benefits that flow from shared public services funded by tax dollars. Paying taxes is a civic duty to our community and our state. Legislators must honor their roles and appropriately fund agencies that serve their constituents.

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Statement: When lawmakers cut taxes, they ask state agencies to figure out efficiencies…and do more with less.

Fact: When Oklahoma lawmakers cut taxes, state agencies usually find these “efficiencies” by laying off staff, reducing services, and/or eliminating programs. These actions only hurt everyday Oklahoma taxpayers who, during times of high inflation and economic uncertainty, are most likely to need those services. Broad, across-the-board tax cuts do not help everyday Oklahomans. Painting a false narrative that the government is overfunded while services are facing budget cuts and shortfalls is misleading and a disservice to taxpayers. If lawmakers want to be efficient stewards of taxpayer dollars, they should focus their efforts on strengthening tax credits that bring targeted relief to low- and middle-income Oklahomans, encouraging the creation of more affordable housing, and raising the minimum wage.