House passes tax relief for individuals, businesses
Mike Seals - March 11, 2021 11:29 pm
OKLAHOMA CITY – The House of Representatives advanced significant tax relief for individuals and businesses Thursday through bills phasing out the corporate income tax over five years and reducing personal income taxes at all income levels.
“Oklahoma needs a pandemic rebound and competitive boost in the race for jobs,” said House Speaker Charles McCall, R-Atoka. “It’s time to talk about tax relief in Oklahoma. This tax relief plan makes us more competitive, grows our economy and benefits all Oklahomans.”
House Bill 2041, by McCall, reduces the personal income tax by .25% through a credit. It results in tax reductions for all income levels.
HB 2083, by McCall, gradually phases out the state’s duplicative, outdated corporate income tax, which is currently set at 6%. Over the next five years, a deduction would be used to reduce the effective rate by 20% a year until it phased out in 2026.
“Timing for tax relief is ideal. Oklahoma can afford putting money back in the taxpayers’ pockets after years of strong fiscal management produced record revenues, significant investments in core services, historic reserves and now a more than $1 billion surplus,” said House Appropriations and Budget Chairman Kevin Wallace, R-Wellston.
The bills, as a package, are designed to grow the economy, recruit new businesses, spur spending after the pandemic and, ultimately, grow state revenues.
“This is responsible, thoughtful tax relief with adequate budgetary protections. Under this approach, Oklahoma will continue enacting strong state budgets containing historic investments because it will be stimulating the economy that funds those budgets. Once fully enacted, Oklahoma will be one of only three states that charges neither a corporate income tax nor a gross receipts tax,” said House Appropriations and Budget Vice Chairman Kyle Hilbert, R-Bristow.
Because the bills use credits and deductions to achieve tax relief, they are not subject to the provisions of State Question 640, which requires supermajority legislative votes to raise revenue. The bills could be paused or reversed with simple majority votes in the future if necessary.
Personal income tax
Under HB 2041, the top income tax rate most taxpayers pay would be effectively reduced by .25%, from 5% to 4.75%, through a credit structure. To achieve tax relief for all income levels, various deductions are adjusted and earned income tax credit refundability is restored.
The fiscal impact to the budget next year is $71.1 million and $180.8 million the following fiscal year.
However, stronger state revenues have followed state income tax reductions in the past 25 years. Since 1997, the state top personal income tax rate has been reduced from 7% to 5%, or 28.5%, while state revenue from the tax has grown from $1.7 billion in Fiscal Year 1997 to a projected $3.7 billion in FY 2021 – an increase of 116% unadjusted for inflation and 32% adjusted for inflation.
Short-term state revenue reductions during that time were largely caused by economic events following the Sept. 11, 2001 terrorist attacks, 2008 national financial collapse, mid-2010s energy sector contraction and pandemic.
Corporate income tax
Corporate income tax is a volatile revenue stream, typically accounting for less than 4% of the state’s main operating account, the General Revenue Fund. In the grand scheme of an $8 billion appropriated budget and total operating budget of more than $20 billion, the $350 million corporate income tax produces a year on average is insignificant.
Eliminating it over five years by reducing it 20% a year, as proposed in HB 2083, has a fiscal impact of $32.3 million next year and $100 million the following fiscal year.
“The current corporate rate of 6% has little budgetary value and is a black eye for business recruitment, especially against Texas where there is no corporate income tax,” McCall said. “Oklahoma is on the shortlist in the hunt for jobs against other states, but we continue to fail to close the deal. Eliminating the corporate income tax gets us off the short end of the shortlist.”