The special session last week went pretty much according to script. The House, following Speaker Charles McCall’s lead, passed the governor’s .25-percent income tax cut along strict party lines with 71 Republicans voting in favor and all 20 Democrats voting “no.” Nine Republican House members did not vote. The Senate made good on President Pro Tempore Greg Treat’s announced intention to adjourn the session with no action.
Both chambers adjourned to the call of the chair so they could take up a tax bill later in either the regular session that started Monday or in the special session. In doing so they offered the governor a face-saving device by saying the special session might be useful later if they come to an agreement. In fact, there are plenty of procedural options available during the regular session to implement a late-breaking agreement on taxes, should that happen.
Both chambers seemed to acknowledge that it would be good to receive the final certification of revenue available for appropriation from the State Board of Equalization before taking action that would drastically affect the Fiscal Year 2025 budget that starts July 1. The Oklahoma Constitution is drafted with the intent to make available the final certification to the legislature near the beginning of each regular session. It will be forthcoming this year on February 15.
The .25-percent income tax cut would lower revenue by between $235 and $293 million, if fully implemented. Judging from appropriation requests from the executive agencies and proposals by various House and Senate members, there is plenty of need for any new funding the board certification would allow.
In addition to the anticipated needs, Senate Appropriations Chairman Roger Thompson, R-Okemah, pointed out in December, after the board’s preliminary estimate, there are certain built-in increases that must be met before any “new money” will be available for appropriation. One example is the private school vouchers in last year’s legislation. The legislation capped the vouchers at $150 million for FY 2024 but raised the cap automatically to $200 million for FY 2025. This $50 million must be budgeted before any additional funding can be appropriated for FY 2025. There are likely other similar items.
Whether and what kind of tax cut to pass could be the subject of quite a bit of acrimony for the upcoming session. One of the least fair ways to cut taxes is the .25-percent, across-the-board cut in the individual income tax. That’s primarily because Oklahoma has a practically flat income tax.
Most people, if they think about it at all, probably think that like the federal income tax that ranges from 10% to 37% Oklahoma has a graduated income tax where those who make a lot of money pay at a higher rate. But our income tax is only graduated up to an income of $2,300 (hundred, not thousand) per year. After an income of $2,300 per year, everyone is charged the same 4.75% tax rate. So naturally the higher your earnings the more your tax cut.
According to the Institute for Taxation and Economic Policy, the .25% tax cut would give the bottom 20 percent of Oklahomans (those making below $23,900 per year) only an average $19 tax cut while the top 1 percent (those making $619,000 and above) would average a $2,634 cut. Individuals earning $44,000 and below would get $92. Oklahoma’s median individual income is about $57,000 per year.
There are better ways to get tax relief for those who need it most. But many would argue the best policy is to invest the revenue generated by the state’s economy into infrastructure and services that will increase the quality of life for the state’s residents.