Last week the Oklahoma Senate Finance Committee approved SB 977, a bill that would suspend 23 tax credits for the next two years as a way to partially address the state’s massive budget shortfall. While the bill targets numerous credits, a large majority of the impact would come from ending three important tax credits for low- and moderate-income working families — Oklahoma’s Earned Income Tax Credit (EITC), Sales Tax Relief Credit, and Child Tax Credit/Child Care Tax Credit. The Senate Finance Committee has also approved SB 917 and SB 918, which would sunset the Earned Income Tax Credit and Sales Tax Relief Credit after 2017 if they are not reinstated by the Legislature.
These important tax credits are designed specifically to encourage work (EITC), support basic nutrition (Sales Tax Relief Credit), and strengthen families with children (Child Tax Credit). These types of credits have lifted millions out of poverty nationwide. They provide just enough breathing room in a family budget to ensure that basic needs are met and that other forms of assistance aren’t necessary. While many tax credits may be criticized for benefiting a narrow special interest, what makes these credits different is that they are extremely broad-based — going to over 40 percent of Oklahoma families — and they help alleviate some of the imbalance in our state tax system that already takes the biggest percentage of income from those who make the least.
The state’s Earned Income Tax Credit (EITC) supplements 5 percent of the federal EITC. The EITC has received praise from both the left and right as an effective way to bolster economic security for working families while encouraging work. House Speaker Paul Ryan and President Obama have proposed very similar plans for expanding the EITC in recent years. In Oklahoma, the state EITC, which was signed into law by Gov. Frank Keating in 2001, was claimed by 331,854 households for an average benefit of $118 in fiscal year 2013.
The Sales Tax Relief Credit, sometimes known as the “grocery tax credit,” is an income tax credit that provides a rebate of $40 per household member to low- and moderate-income households. Oklahoma is one of only seven states that imposes a sales tax on groceries atthe full rate. Most states have reduced or eliminated taxes on this basic necessity that eats up a substantial portion of a low-income family’s budget, so the Sales Tax Relief Credit is intended to alleviate a portion of that cost. In fiscal year 2013, this credit was claimed by 476,193 households and benefited almost 1 million Oklahomans.
The Child Tax Credit and Child Care Tax Credit help parents to pay for child care so they can work or look for work. They also reduce taxes for stay-at-home parents and those who care for dependent elders or people with disabilities. The state child care tax credit can be claimed for 20 percent of the federal credit for child care expenses, up to a maximum of $420. Families also have the option to instead receive 5 percent of the federal child tax credit of $1,000 per child, so those who don’t pay out-of-pocket for child care can still benefit. In fiscal year 2013, these credits were claimed by 378,993 Oklahoma households for an average benefit of $72.
It’s important to realize that Oklahoma lawmakers just moved ahead with a cut to the top income tax rate, which reduces state revenues by some $150 million for the upcoming year, on the grounds that Oklahomans deserve tax relief. Eliminating these credits would make false lawmakers’ claims to be offering tax relief. Instead they will have shifted taxes directly from those already making high incomes to poor and middle class taxpayers. The chart below shows what that looks like:
In fact, ending these credits would increase taxes for more than one-third of all Oklahomans. The average middle-income Oklahoma household would see its taxes increase by $57 — or nearly twice what these families received from this year’s income tax cut ($29). The bottom 40 percent of households in Oklahoma, making less than $33,000 a year, would see average tax increases of more than $100 while receiving little to nothing from the income tax cut. Low- and moderate-income families with children would be hit especially hard; many would see a net increase in their taxes of several hundred dollars.
During the committee hearing, Senate Finance Chair Mike Mazzei said that he did not intend for his bill to suspend these credits to ultimately make it into law, but it would be held in reserve in case a more targeted approach to reducing tax breaks did not find success. We hope that as lawmakers move forward in their efforts to close Oklahoma’s massive budget hole, it’s not the hundreds of thousands of regular families relying on these credits who end up being targeted.
These same families suffer most when Oklahoma cuts education funding, slashes health care, and makes other deep cuts to core public services. Asking for more pain from those who are already struggling most while refusing to reconsider the income tax cuts for top earners and huge tax breaks for oil and gas companies that helped get us into this mess would be a deeply troubling path for Oklahoma lawmakers to take.