Unless the Legislature acts to halt it, the state’s top income tax rate will fall from 5.25 to 5 percent next January based on legislation passed last session, SB 1246, that tied the top rate cut to a revenue trigger. Even though the trigger was supposed to ensure that the tax cut would not take effect unless revenues were growing, the trigger was drafted in such a way as to kick in despite falling oil prices and projected revenue drops.
The tax cut contributes $57 million to the state’s $611 million budget shortfall for the upcoming fiscal year and $147 million in 2017, while providing just $31 in savings for the average household. A majority of Oklahomans oppose moving ahead with the tax cut given the state’s budget situation, and close to 100 businesses, foundations, and organizations have joined a call for the tax cut to be halted.
Now, some say the Legislature is prevented from halting the tax cut because it would require a legislative supermajority due to the constitutional requirements of State Question 640. Yet this is a far-fetched and unpersuasive reading of SQ 640 — as the tax cut proponents themselves successfully argued when defending it before the Oklahoma Supreme Court.
State Question 640 was a citizen-initiated ballot measure approved by Oklahoma voters in a special election in March 1992. The measure amended Article 5, Section 33 of the Oklahoma Constitution to add restrictions on how revenue bills can become law. Under SQ 640, a revenue bill can only become law if it is: (1) approved by a 3/4th vote of both legislative chambers and is signed by the Governor; or (2) referred by the Legislature to a vote of the people at the next general election and receives majority approval.
After SB 1246 passed last year, Oklahoma City attorney Jerry Fent challenged the bill’s constitutionality. Fent argued that a “bill to raise revenue” is any bill that is primarily concerned with taxes, whether it increases or lower taxes. Accordingly, he argued that SB 1246 was subject to all the obligations of a revenue bill, including that it originate in the House of Representatives and be approved by a supermajority. The Supreme Court ruled against Fent’s claim that SB 1246 was unconstitutional, stating that the people, in approving SQ 640, did not intend for its requirement to apply to tax reductions.
The question at issue this session is whether suspending, or even cancelling, a tax cut that has not yet taken effect can be construed as a tax increase. In its respondents brief to the Supreme Court in defense of SB 1246, the Oklahoma Attorney General’s office made a strong, and ultimately successful, case that Article 5, Section 33 applies “only to legislation that has the primary purpose of generating new tax revenues.” (emphasis in original). The brief cites the Supreme Court’s ruling in a 1991 decision overturning a challenge to SQ 640 that indicated that the supermajority requirement would limit the Legislature’s power “to raise new taxes,” as well as a 1996 Attorney General’s opinion stating that SQ 640 modified “the Legislature’s power to levy additional taxes”(emphasis in respondents brief). Any legislation passed this session to suspend a tax cut that hasn’t yet taken effect is unlikely to run afoul of requirements intended to limit the Legislature’s ability to generate new tax revenues or levy additional taxes.
The Attorney General also notes that throughout its history, the Oklahoma Supreme Court “consistently took a narrow view of what constituted a ‘revenue bill,’ and consistently declined to apply Article 5, Section 33 to invalidate revenue-related legislation…” Applying the supermajority requirements of SQ 640 to a bill that halts or defers a tax cut that hasn’t taken effect would require an expansive understanding of “revenue bills” that does not fit with the court’s historical rulings, including the ruling to uphold SB 1246.
If the Legislature were to vote by a simple majority to suspend or cancel the tax cut, someone could surely challenge the law as a violation of SQ 640. But in a situation that did not involve a clear tax increase or new tax revenues, the Attorney General’s arguments for a narrower interpretation of SQ 640 that won the day in upholding SB 1246 would almost certainly prove persuasive again.