DALLAS — The Oklahoma Senate adopted a 10-year phaseout of the state’s personal income tax Monday that could reduce revenues by more than $4 billion over the next four fiscal years.
SB 1517 passed by a 30-to-17 vote and was sent to the House, where a similar measure, HB 3038, has been introduced. Neither bill would alter the corporate tax structure.
In the House, 31 of 101 representatives are listed as co-sponsors of the income tax bill.
Both proposals would slash the top personal income tax rate in fiscal 2013 to 2.5% from the current 5.25%. Single filers with taxable income of $8,700 or less and married couples with an income of $15,000 or less would pay no income tax. The tax rate would go down 0.25% a year before being completely phased out by fiscal 2022.
Existing income tax credits, deductions and exemptions would be eliminated in 2013 except for those affecting retired taxpayers and Oklahomans serving in the military.
The state’s fiscal 2012 general fund budget of $6.4 billion includes $1.9 billion from the personal income tax.
The Oklahoma Tax Commission said the phaseout would reduce general fund revenues by $650 million in fiscal 2013, $973 million in 2014, $1.3 billion in 2015 and $1.72 billion in 2016. The analysts said their model could not predict revenues beyond 2016.
Another $760 million of income tax revenues is allocated by law directly to three state agencies, including $280 million to the Oklahoma Department of Transportation and $180 million to the teachers retirement system.
Sen. Clark Jolley, R-Edmond, the principal author of the legislation, said the tax cuts would create a more prosperous state.
“We’re going to see growth in our economy because of this,” Jolley said during the floor debate.
Sen. Tom Adelson, D-Tulsa, argued that Jolley’s proposal would not pay for itself through increased economic activity. The plan would result in severe cutbacks in government services, he said.
“You can’t get something for nothing,” Adelson said.
Sen. Judy Eason McIntyre, D-Tulsa, told Jolley that Oklahomans don’t realize how severe cuts in state services would be.
“When these people wake up and figure out they’ve been bamboozled out of hope and prosperity, they’re going to turn on you,” she said.
A group of representatives supporting the tax cuts said Monday they have found $853 million in savings that could be realized in the next two years by eliminating wasteful spending and getting rid of ineffective corporate tax credits.
“Some of our colleagues may feel uneasy about eliminating taxpayer subsidies for things like golf courses or rodeos that may be in their home district,” said Rep. Tom Newell, R-Seminole. “But our constituents sent us to the capitol to use common sense and fix what needs fixing.”