DALLAS – A tax accord reached last week by Oklahoma legislators and Gov. Mary Fallin became reality Wednesday with final passage of a bill lowering the state’s top income tax rate.
The Oklahoma House adopted House Bill 2032 that will drop the top rate to 5% from the current 5.25% on Jan. 1, 2015.
Gov. Mary Fallin said she would sign the bill, which was passed by the Senate the day after the accord was announced last week by Fallin, House Speaker T.W. Shannon, and Senate President pro tem Brian Bingman.
“Lowering the income tax rate will let Oklahoma families keep more of their hard-earned money while spurring job growth and business expansion in Oklahoma,” Fallin said.
The original House tax bill, which Shannon sponsored and Fallin endorsed, lowered the top rate to 5% on Jan. 1, 2014. The Senate countered with a tax bill that delayed the tax cut until 2015, but provided a top rate of 4.95%. The compromise accepted the delayed implementation in exchange for the potential for even lower rates later.
The drop from 5.25% will reduce state revenues by $136 million a year when fully implemented, the Oklahoma Tax Commission said.
The top income tax rate will go down to 4.85% in 2016 if projected revenues are sufficient to offset the reduction. The Tax Commission said the 4.85% rate would lower state revenues by $237 million a year.
Shannon said the tax plan will give Oklahomans much-needed tax relief.
“Hardworking Oklahomans should keep more of their hard earned money because they will either save it or spend. That is how you grow an economy,” he said.
The new rate is expected to reduce the average filer’s state tax bill by $82 a year, with the savings rising to $143 a year at 4.85%.
The tax bill passed, 65-37, with opposition from all 28 Democrats in the House and seven Republican representatives.
Minority leader Rep. Scott Inman said lowering the income tax rate in 2015 and again in 2016 could be a mistake if state revenues nose-dive as they did in the recession.
“Explain to me how that is fiscally responsible,” he said.
HB 2032 also allocates $60 million to repairs to the deteriorating state capitol in fiscal 2014 and another $60 million in fiscal 2015 to the project.
Opponents said including the capitol restoration project in the tax bill could face a legal challenge as a violation of the state constitution’s single-subject rule.
“It is going to go to the Supreme Court, and it is going to get thrown out,” said Rep. Joe Dorman, D-Rush Springs.
The 2012 Legislature rejected Fallin’s call for a top income tax rate of 4.8% as well as a $200 million bond program to repair the capitol and other state buildings at the complex in Oklahoma City.