DALLAS — Oklahoma Gov. Mary Fallin will propose an across-the-board cut in the state personal income tax rate at Friday’s opening legislative session.
Fallin declined to be specific on the depth of the tax cut at Thursday’s legislative forum sponsored by the Associated Press, but called it “one of the boldest tax-reform plans we’ve seen in our state’s history.”
She said the plan, which is to be unveiled at her state of the state address Friday afternoon, will result in Oklahoma having one of the lowest state income tax rate in the nation. “It will be a significant tax reduction for a majority of all Oklahomans, and I think it will be a game-changing moment for our state,” Fallin said.
The unspecific reduction would go into effect Jan. 1, 2013, Fallin said.
The top tax rate on individual earners dropped to 5.25% from 5.5% at the beginning of 2012. The lowest rate is 0.5%.
The proposal would reduce the number of tax brackets to three from the current seven, said Fallin, a Republican.
“Our goal is to create a tax structure that is fairer, that is flatter, that is simpler to use, one that will help Oklahoma be more competitive as a state,” she said.
The idea is to stimulate the state’s economy through lower tax rates, Fallin said, and eventually eliminate the personal income tax.
The tax cuts would not harm government operations or place a larger burden on the poorest Oklahomans, Fallin said. The state will continue to adequately fund core essential services. “My goal is not to balance our budget on the backs of the poor,” she said. “My goal is also not to starve state government.”
The revenue lost through the lower tax rate will be recouped by eliminating a number of existing state tax credits, according to Fallin. “We’re not going to eliminate all of them, but we are certainly providing a significant list of tax credits that we’re suggesting that we basically exchange out for lower tax rates,” she said.
Rep. David Dank, R-Oklahoma City, has introduced legislation to phase out a number of tax credits that he said would save $250 million to $300 million of lost revenue in fiscal 2013, and more later.
Dank said eliminating inefficient and unproductive incentives and credits would allow for lower income tax rates.
A Senate task force recommended in December that the top individual income tax rate be reduced to 4.75% over two years while lowering the corporate rate to 5% from the current 6%.
The Oklahoma Tax Commission said last year that each 1% of the individual income tax rate generates $450 million to $475 million a year.
Collections from the individual income tax total $3.2 billion over the past 12 months, with another $526.8 million from the corporate tax.
Fallin will also present the executive budget for fiscal 2013 when the Legislature convenes.
The State Board of Equalization said in December that lawmakers would have $500 million more to allocate in fiscal 2013 than in fiscal 2012.
However, Treasurer Ken Miller said Thursday that number might be lower because low prices for natural gas will reduce revenues from the energy severance tax. “The December estimate was based on gas at $4 per thousand cubic feet,” he said. “Prices are in the $2.50 range this week, with little improvement anticipated in 2013.”
“The warmest winter in some 100 years is exacerbating the supply glut and as demand drops, so do prices,” Miller added.
The revenue board will meet later this week to develop an official outlook that lawmakers will use for the fiscal 2013 budget.