House Speaker Charles McCall, R-Atoka, has introduced a plan to lower and eventually eliminate the state corporate income tax and to lower the state personal income tax rate. Acknowledging the difficulty of raising taxes in the future because of State Question 640, Speaker McCall has written the proposal using tax credits to produce the same effect as a tax cut. SQ 640 was passed on March 10, 1992, and placed in the Oklahoma Constitution the requirement of a vote of the people or a 75 percent majority of the legislature to pass a tax increase.
The proposed use of tax credits to lower taxes because the credits can be repealed later with a simple majority vote of the legislature is feasible because of a 5-4 decision in 2017 by the Oklahoma Supreme Court. That decision upheld a law repealing a sales tax exemption on the sale of motor vehicles that was passed with less than a 75 percent majority of the legislature. The court ruled that, although the primary purpose of the bill was to raise revenue in response to the State’s budget crisis, repeal of a tax exemption is not a revenue increase. But the case had two well-reasoned dissenting opinions. The court basically created a judicial fig leaf allowing the legislature to raise taxes with a simple majority vote under certain circumstances. Speaker McCall says future legislatures can use that if they need to raise taxes.
Setting aside whether it’s a good idea to cut taxes in Oklahoma, give the Speaker credit for recognizing the problem of gathering a 75 percent majority to pass a tax increase. He should know. He was the Speaker in 2018 who put together the votes in the House to pass the once-in-a-generation tax increase to raise teacher’s salaries.
The problem with the 2017 court decision is that, for starters, it inhibits the ability to make straightforward tax policy decisions. Instead, legislators pick around the tax code looking for ways to raise revenue without complying with SQ 640 whether they make sense or not. For example, they can remove an agricultural sales tax exemption with a simple majority, but they need a 75 percent majority to raise the tax on liquor or cigarettes. Another problem is that, if legislators ever did attempt to remove the Speaker’s tax credits, the bill would surely be the subject of litigation. The 2017 decision could be reversed, or a new ruling could hold that removing a credit is not the same as removing an exemption.
SQ 640 is a 30-year-old relic that needs to be repealed or amended. It was passed in reaction to the mid- to late-1980s passage of four substantial tax increases in five years that, together with deep budget cuts, kept state government afloat, but made no one very happy. The last of the tax increases was the education reform bill, House Bill 1017. Opponents of the tax measures circulated petitions to repeal HB 1017, which became SQ 639 and to pass the 75 percent majority requirement that became SQ 640. Both measures were litigated causing the SQ 639 election to be held first. Proponents of HB 1017 were victorious in saving HB 1017, but were spent by the effort. Five months later, SQ 640 passed without effective opposition and lives to haunt the state today.
When Speaker McCall brought his tax proposals out, he said he wanted to start a conversation. It would be a good thing if, during that conversation, citizens could organize an effort to get rid of SQ 640. There will continue to be pressure to cut taxes. It only makes sense to be able to raise revenue when necessary.