Increasing focus is on repealing the capital gains tax break as a solution to fully fund state budget needs and resolve a teacher walkout. A repeal bill (SB 1086) has already passed the Senate with a bipartisan 30-10 majority. It has been placed on the House calendar so that it can go straight to a vote in the full House at any time, but so far House leadership has not brought it to a vote.
Oklahoma’s capital gain deduction allows income from the sale of Oklahoma real estate or stock in an Oklahoma-based firm to go fully untaxed.
- The capital gains tax break is costing Oklahoma hundreds of millions without paying off in economic growth. Economic development experts working with Oklahoma’s Incentive Evaluation Commission concluded that this tax break reduced state revenues by $474 million from 2010 to 2014 while creating only $9 million in revenue growth, for a net cost of $465 million. Corporations can also claim the capital gains deduction, but there is no public information on how much that part of the tax break is costing the state.
- The capital gains tax break is poorly targeted and poorly monitored. Unlike similar capital gains deductions in other states that have them, Oklahoma’s deduction is not targeted to any specific industry and has no requirement that gains from this tax break be re-invested in Oklahoma.
- The capital gains tax break benefits a small number of households at the expense of most Oklahomans. The capital gains deduction costs more than $100 million going to less than 20,000 households, or barely 1 percent of all households filing tax returns in Oklahoma. In 2014, nearly two-thirds (64 percent) of the benefit went just 824 households with incomes of more than $1 million.
- Ending the capital gains tax break is supported by Oklahoma voters. Fifty-five percent of Oklahoma registered voters favor ending the capital gains tax break, compared to just 35 who would oppose ending it, according to a recent poll by Global Strategy Group for OK Policy that looked at various revenue ideas for the state budget.
- Lawmakers could also reform the capital gains deduction to protect farmers, middle-income Oklahomans, or other favored groups while still eliminating most of the cost of this large tax break. Even if lawmakers decide to keep the capital gains deduction in some form, that can be done without handing out unknown amounts of money to unknown entities. We can limit the deduction to cap its costs and to make sure that it actually incentivizes economic growth in a way that helps the state as a whole. (Read more about possible reforms here.)
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The Bottom Line
Oklahoma’s capital gains tax break is shown to be a wasteful loophole and inefficient use of tax dollars. Lawmakers should repeal this tax break to ensure a broad-based tax system that works for all Oklahomans without unduly burdening or supporting any small group of people.
Please ask your state Representative to support SB 1086 to sunset the capital gains deduction in 2018.