A proposal by the legislature’s tax reform task force would raise taxes for most Oklahomans, with the worst impact on low-income seniors and families with children, according to a new fact sheet from the Oklahoma Policy Institute. The task force suggested paying for further cuts to the top income tax rate by ending numerous tax credits and exemptions relied on by low and moderate income Oklahomans.
An analysis by the Institute on Taxation and Economic Policy (ITEP) reveals that if this plan were to take effect today, taxes would increase for 55 percent of Oklahomans. Only 31 percent of Oklahomans would receive a tax cut. There would be no change for 13 percent of Oklahomans, a group largely made up of childless singles and married couples with incomes smaller than the standard deduction. [Note: ITEP included about 3/4ths of the credits slated for elimination but did not model tax credits believed to be taken primarily by corporations.]
Among all households, the top 1 percent (those making $357,400 or more) would receive by far the largest benefit, with an average tax break of $2,833. The bottom 60 percent would see an average tax increase of $107.
The largest tax increase among married couples with two children would be for households making $25,000, according to the analysis. They would see a tax increase of $647. Two-child families would not receive a tax cut unless their income was at least $117,000. These families are hit especially hard by the loss of the personal exemption for every household member, including children, as well as the child tax credit and earned income tax credit.
Another group disproportionately affected is low-income seniors, because they would lose the sales tax relief credit and the personal exemption, which is doubled for seniors with incomes below $25,000. Almost all senior couples making less than $50,000 would have their taxes increased.
The sales tax relief credit was claimed on almost one-third (32.3 percent) of all of the tax returns filed in 2009, and it provided a $40 benefit each to more than 1 million Oklahomans. The Oklahoma earned income tax credit was claimed on 307,253 returns in 2009 for an average benefit of about $104. The child care tax credit/child tax credit was claimed on 362,470 returns for an average benefit of about $80. The personal exemption benefits everyone who files an Oklahoma state income tax return; it reduces tax liability for a family of four by more than $200.
Task force member (and OK Policy board member) Don Millican, one of six who refused to endorse the final report, was right to say, “Basically, you’re taking money from the poor and giving it to the rich. I can’t support that.” We are hopeful that as others learn the facts about this ill-conceived idea, they will reach the same conclusion.
For more on the income tax debate, see our tax reform information page.