DALLAS — Oklahoma Gov. Mary Fallin and Republican leaders in the Legislature have agreed on income tax cuts that would reduce state revenue by almost $33 million next year and more than $100 million in fiscal 2014.
The plan outlined at a news conference May 17 would reduce the top rate to 4.8% from the current 5.25%, with three tax brackets instead of the current seven. The lower rate would go into effect Jan. 1, 2013.
If tax revenues are up by at least 5% in fiscal 2015, the top individual rate would drop to 4.5% on Jan. 1, 2015. The drop would cost the state an additional $170 million in lost revenue.
“Our plan is a responsible proposal that will go hand in hand with a budget that protects and supports all core functions of government,” Fallin said. “It also delivers a substantial tax cut that will allow Oklahomans to keep more of their hard-earned money while improving the environment for job recruitment and job retention in the state.”
The personal income tax accounts for almost a third of Oklahoma’s annual general fund revenue.
The agreement removes a major impediment to passage of Oklahoma’s $6.6 billion budget for fiscal 2013, which begins July 1. The Legislature is set to adjourn Friday.
Democrats in the Legislature oppose cutting the income tax after three years of declining revenues, but Republicans can pass the measure without their help. The GOP controls 67 of the 101 House seats and 32 of the 48 Senate seats.
“With the huge list of unfunded mandates that have been passed over the years, and with the debts and obligations we currently face, why aren’t we paying off those debts rather than cutting taxes right now?” said Rep. Joe Dorman, D-Rush Springs.
Finance Secretary Preston Doerflinger said the 4.8% rate would lower revenues by $32.7 million in fiscal 2013 and $102 million in fiscal 2014, when the rate would be in effect for the full 12 months.
Doerflinger said the hit in 2013 would be compensated with higher-than-expected revenues this year. He said collections are $350 million above the official estimate for fiscal 2012 through April.
Fallin said the lost revenue would be more than made up through the proposal’s elimination of tax credits and exemptions.
She said the plan provides $117 million of additional revenue with 33 tax credits targeted for demise, along with the removal of the personal exemption for joint filers with more than $70,000 in annual income.
Fallin said the proposed rates represent a tax cut of more than $218 million a year by fiscal 2014, with an additional $121.4 million if the revenue trigger is reached in 2015.
House Speaker Kris Steele, R-Tulsa, said this is the right time to cut taxes.
“Collections through April of this year are now $350 million higher than originally expected,” he said. “Oklahoma is growing.”