With inflation remaining at a 40-year high, House Republicans on Thursday advanced five new options the Legislature can choose from to provide tax relief to Oklahomans this session.
"Again, the House wants to address inflation today without causing budget problems tomorrow," said House Speaker Charles McCall, R-Atoka. "With President Biden's policies driving inflation up and more states cutting taxes – especially income taxes – last year than any year since 1986, Oklahoma must stay vigilant on tax relief. The options in these bills allow Oklahoma to aggressively fight inflation and continue competing economically while protecting its strong state budget."
The tax relief options are:
- One-time income tax rebate of $125 for individuals and $250 for households
- Permanent income tax rate reduction of .25%
- Two-year grocery sales tax suspension
- Two-year enhancement of the grocery sales tax credit for low-income Oklahomans
- Eight-year phaseout of the corporate income tax
Each option should have no negative impact on the appropriated budget in the short or long term thanks to the way each is structured and current surplus revenue levels, according to legislators.
"All parties have brought several strong tax relief ideas to discuss as we begin budget negotiations," said House Appropriations & Budget Chairman Kevin Wallace, R-Wellston. "Whether on their own or packaged together, the House's ideas achieve shared tax relief goals today while acknowledging the inevitability of the incredible momentum presently enjoyed in our economy, and reflected in record state revenues, eventually subsiding someday."
Income tax options
One-time rebate: Oklahomans who filed a state income tax return in 2021 would receive a one-time tax rebate of $125 for individuals and $250 for households this year under House Bill 1358, by McCall. The estimated $321 million cost of the rebates would be paid for out of surplus state revenues, resulting in no budgetary impact.
"The stars are aligned to responsibly give taxpayers some of their money back at a time they really need it. Revenues and reserves are at all-time highs, more than $1 billion in certified, one-time surplus funds exists, annual General Revenue Fund collections are 21% above estimates, and oil is over $100 a barrel," McCall said. "Rebates can help working Oklahomans offset all types of inflation, from groceries to gas to everything in between."
Permanent tax cut: A .25 percent reduction to all personal income tax brackets would occur under HB 3350, by McCall. The bill reduces the top personal income tax rate from 4.75 percent to 4.5 percent, saving the average taxpayer $121 per year, according to the Oklahoma Tax Commission.
"Cutting income tax, the state's most regressive tax, remains the most aggressive way to combat the inflation President Biden's policies have inflicted on most Oklahomans. It also presents long-term economic benefits by keeping Oklahoma's income tax rate competitive with other states," McCall said.
Oklahoma's personal income tax rate would move from 9th to 7th-lowest nationally under the bill, according to the Tax Foundation. The estimated $226 million cost of the reduction is expected to be outweighed by state revenue growth, as has been the case with the past 25 years of state income tax reductions in Oklahoma. As Oklahoma's personal income tax rate dropped from 7% in 1997 to 4.75% this year, state income tax collections rose from $1.7 billion to $3.7 billion during that time.
Grocery tax options
Two-year rate suspension: Oklahoma's 4.5 percent state grocery sales tax would be temporarily suspended for all taxpayers for two years under HB 3349, by McCall, at a cost of $325 million a year. The measure would not affect local sales taxes on groceries.
Two-year credit enhancement: An enhancement of the state's existing grocery sales tax credit for low-income Oklahomans would be offered for two years under HB 3353, by McCall. The bill would increase the grocery sales tax credit to up to $180 a year for low-income Oklahomans, depending on income levels, age and household size, at an estimated cost of $185 million a year.
McCall said there is House Republican support for permanently eliminating the grocery sales tax through a broader tax reform effort.
"The best way to permanently eliminate the state grocery tax is through comprehensive tax reform that sets a truly conservative state tax code, from top to bottom, for the next generation. Oklahoma could have that discussion over the next two years while still providing temporary relief that meets the immediate, consensus need to make groceries more affordable, especially for low-income Oklahomans, during historic inflation," McCall said.
Corporate income tax elimination
Oklahoma's corporate income tax would be largely phased out over eight years under HB 4358, by Rep. Jeff Boatman, R-Tulsa, continuing last session's push to make Oklahoma more business friendly by eliminating the corporate income tax. Boatman's bill would also give businesses with accrued corporate income tax credits time to utilize those credits without harming multiyear business plans.
"Corporate income tax is an outdated, volatile revenue source that is ultimately unnecessary in the long term, due to the changing nature of business structures," Boatman said. "A steady phasedown of this tax protects the budget and sends a positive message that Oklahoma is open for business."
The estimated $35 million annual cost until phaseout should be outweighed by increased economic activity, resulting in no budgetary impact, Boatman said.
The bills advanced from the House Rules Committee on Thursday. Their next step is a hearing on the House floor.
The bills follow the successful push by McCall and House Republicans last session to cut the top personal income tax rate from 5 percent to 4.75 percent, and the corporate income tax rate from 6 percent to 4 percent, to provide a historic $350 million tax cut for Oklahomans.
"I stood on House floor last session and stated it was time to enact tax relief in Oklahoma. Despite initial resistance, we worked together and delivered," McCall said. "I am pleased the question this session is not whether to provide tax relief, but how to provide tax relief. The legislative process will bear that out, and the House looks forward to evaluating all options."