Tax cuts for some, tax hikes for others

Will Oklahoma families pay higher or lower taxes under HB 3061, the tax plan agreed to last week by Governor Fallin and legislative leaders? The answer depends on a number of variables, including household income, family size, and whether or not they claim itemized deductions on their federal and state tax return.

The tax policy specialists at ITEP, the Institute on Taxation and Economic Policy, calculated the change in tax liability for sample family types. They found:

  • A single parent with two children earning $20,000 per year will pay $45 more tax under HB 3061 than currently. This is primarily due to changes in the lower tax brackets that would tax more of their income at a higher rate.
  • A single parent with two children earning $40,000 per year will pay $75 less tax. This family would retain their current deductions and credits and would have part of their income taxed at a lower top rate.
  • A two-parent family with four children earning $100,000 per year will pay $134 more tax under the plan. Their taxes would increase because the additional tax from losing their personal exemptions (currently $1,000 per family member) and the itemized deduction for state income tax would exceed the benefit from a lower top rate.
  • A two-parent family with four children earning $250,000 per year will pay $93 less tax. In this case, the gains from the top rate cut will more than offset the loss of personal exemptions and the deduction for state income tax.

Looking at all families, ITEP calculates that roughly one in five families earning between $17,000 and $85,000 will pay higher taxes, while about three in five will pay less. The middle- and upper-middle taxpayers with income between $85,000 and $173,000 are likeliest to see a tax hike: in this income range, 43 percent of households are projected to pay more tax, while 53 percent will pay less.  At the highest income levels, almost all families will do substantially better. ITEP calculates that among the top 5 percent of households, 88 percent will pay less tax, compared to just 10 percent who will pay more. A four-person family earning $1 million can expect a $1,528 tax cut under the plan.

Overall, according to an analysis from the Oklahoma Tax Commission, the plan will lower taxes by $98 million in 2013. Of the total tax cut, just 13 percent of the benefit – $12.6 million – will go to households earning under $50,000, who represent 60 percent of all Oklahoma households. Conversely, 41 percent of the total cut – $40.6 million – the highest 4 percent of households, those earning over $200,000. Some $16 million in tax reductions would go to the roughly 9,600 Oklahoma households that earn over $1 million per year.

The bill has passed out of conference committee and is awaiting final passage in the House and Senate. Click here to contact your legislators about HB 3061.

ABOUT THE AUTHOR

David Blatt helped found OK Policy in 2008 and became the organization's Executive Director in 2010. David previously served as Director of Public Policy for Community Action Project of Tulsa County and as a budget analyst for the Oklahoma State Senate. He has a Ph.D. in political science from Cornell University and a B.A. from the University of Alberta. David has been selected as Political Scientist of the Year by the Oklahoma Political Science Association, Local Social Justice Champion by the Dan Allen Center for Social Justice, and Public Citizen of the Year by the National Association of Social Workers. He lives in Tulsa with his wife, Patty Hipsher, a special education teacher in Broken Arrow, and their son, Noah.

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