OKPOLICY.ORG
As legislators draft the state budget and conclude the session, they will confront the issue of what to do with Gov. Kevin Stitt’s proposal for an income tax cut and the eventual elimination of the state income tax. House Bill 1200 contains an income tax cut – not for this year but for next year – and an ill-advised “trigger” mechanism to eventually eliminate the state income tax.
Cutting and finally eliminating the state’s largest source of revenue would put the state government in the unenviable position of being unable to keep pace with the public safety, education, public health, social service and infrastructure needs of an expanding economy. When the private sector grows, the public sector needs to be able to grow with it. If the two get out of balance in favor of too much public growth, the legislature has never been afraid to take the popular measure of cutting taxes at the appropriate time.
Last year’s tax cut of eliminating the sales tax on groceries, touted by Gov. Stitt as the largest single year tax cut in Oklahoma history, is projected to decrease the state’s revenue by $418 million in the coming year. In addition, the legislature earmarked $250 million for private schools in Fiscal Year 2026 that begins on July 1, 2025. When considered together with the grocery tax cut, these two measures will remove more than $650 million from being available for appropriations for the coming year.
It comes as no surprise, then, that appropriations committees are considering using the Rainy Day Fund or other savings accounts to balance the budget and meet the state’s obligations for the coming year. Even for those who agree with the tax cut and funding-private-schools-first policies, it’s not plausible to pass a tax cut that would take effect this year. So, for them the next best thing is to pass future tax cuts now.
This seems like a recipe for disaster. No one can really read our economic future that well. Even the $126 million next-year tax cut that would be achieved by dropping the lowest category of earners – those earning $7,500 per year – from the tax rolls and cutting everyone else by .05 percent for Fiscal Year 2027 (starting July 1, 2026) could be a disaster for the state. And it would do very little good for taxpayers. Those lowest level earners probably don’t pay much if anything anyway, and the .05-percent cut will hardly be felt by everyone else.
Although proponents claim the trigger mechanism would protect “core services,” whatever that means to them, it seems like a wild gamble. If I understand correctly, any time state revenues increase by $400 million over Fiscal Year 2023 revenues, the income tax would drop by .25 percent until it is totally gone. After 10 years, the $400 million would be adjusted for inflation. It seems that this would drastically limit the expansion of public sector services in Oklahoma, no matter the consequences.
No one can accurately predict whether this formula would properly serve the citizens of Oklahoma in the future. And if it doesn’t, any measure that would increase revenue to do so would likely require a 75 percent vote of the legislature, something that’s only been accomplished once. If passed, HB 1200 would be a terrible legacy for this legislative session.
