Oklahoma Gov. Mary Fallin signed an income tax cut measure into law Monday that will gradually lower Oklahoma’s top income tax rate from 5.25 percent to 4.85 percent over several years if state revenues continue to rise.
The Republican governor, who is seeking re-election this year, had made cutting the state’s income tax one of her top legislative goals. Fallin said improving Oklahoma’s tax climate is crucial for the state to attract and retain good jobs instead of losing them to neighboring states with lower tax rates.
“This is a responsible, measured tax cut that will make Oklahoma more economically competitive while providing much needed tax relief to working families,” Fallin said. The Oklahoma Tax Commission estimates that if the cuts are fully implemented by 2018, income tax revenue will be cut by about $200 million a year.
“This tax cut will put more than $200 million annually into the economy and make Oklahoma a better place to do business, meaning more opportunities and jobs for Oklahoma families and more revenue for core government services,” Fallin said. She and other supporters of a tax cut contend it will spur enough economic activity to offset the revenue lost to the state.
The measure received final passage in the Oklahoma House last week by a vote of 54-40. At the time, David Blatt, executive director of the Oklahoma Policy Institute, said the tax cuts would do little for most Oklahoma families while taking scarce tax dollars from public schools and other important services.
“They voted for automatic tax cuts for future years even though the Tax Commission can’t say how much it will cost and we have no projections of what our budget needs will be,” Blatt said. He has called the tax cut fiscally irresponsible when the state is already facing a $188 million budget shortfall for the fiscal year that begins July 1.
The cuts are dependent upon revenue triggers, meaning Oklahoma’s general revenue collections must increase before the cuts take effect. The measure will reduce the personal income tax rate from 5.25 percent to 5 percent in 2016 if state revenue projections increase by enough to cover the cost.
A second reduction from 5 percent to 4.85 percent will occur no sooner than two years after the 5 percent rate is enacted, providing there’s enough money to pay for the cost of the reduction.
The legislation applies to Oklahoma’s top income tax bracket, which applies to individuals earning more than $8,700 a year or couples earning more than $15,000 a year. The Tax Commission estimates that more than 1.7 million taxpayers will be placed in the top income tax bracket in tax year 2016, resulting in a tax cut for 63 percent of all returns filed.
The average cut at the 4.85 percent rate will be $158 per year.
“Most Oklahomans will receive a tax cut from this legislation,” Fallin said. “But every Oklahoman will benefit from a stronger economy and a state that is more attractive to work, live and invest in.”