Step Up Oklahoma: Proposed income tax changes offer protections for low wage earners
Fifty-five percent of individuals filing Oklahoma tax returns would experience either a decrease or no change in their state income tax liability under a series of changes to the state's income tax laws backed by a coalition of Oklahoma business and civic leaders.
Most would not see higher income taxes, even though the proposed changes are designed to raise an additional $144 million in state revenue, according state Rep. Kevin Wallace, the plan's primary architect.
That's possible because the proposed income tax changes are progressive and have several provisions designed to protect low income people from tax increases, said Wallace, R-Wellston, who is chairman of the House Appropriations and Budget Committee.
"We're doing away with loopholes and modernizing the tax code," he said.
Wallace said the proposed tax law changes continued to evolve late last week as plans to eliminate the oil and gas depletion allowance and Oklahoma net operating loss were dropped as part of continuing negotiations with interested parties.
The revamping of Oklahoma's individual income tax laws is one part of a package of proposals backed by Step Up Oklahoma as a way to resolve a legislative budget impasse, raise nearly $800 million in new revenue, fund $5,000 teacher pay raises and alter the structure of state and county government.
Under the income tax portion of the proposal, 6.4 percent of Oklahoma's highest income filers — those with federal adjusted gross incomes of $200,000 or more — would end up paying for more than 50 percent of the $175.7 million in increased state revenues that would be collected, the Tax Commission has calculated.
Oklahoma taxpayers with federal adjusted incomes of $12,000 or less, on average, would receive either a decrease or no increase in their taxes.
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Here are the basics of the proposal:
• Itemized deductions would be capped at $22,500, but charitable contributions would be excluded from that cap to avoid discouraging charitable giving. Deductions for mortgage payments would be among those subject to the cap.
• The $1,000 regular personal exemptions taxpayers have been allowed to claim would be eliminated. The extra $1,000 exemptions for individuals who are blind and those 65 and older (subject to certain income limitations) would continue.
• Standard deduction amounts would be reduced from $6,350 to $5,250 for single individuals, from $12,700 to $10,500 for married individuals filing joint returns, and from $9,350 to $7,700 for heads of households.
• The 5 percent maximum tax rate would remain, but two intermediate tax rates would be established that would lower the tax rate for a portion of income currently taxed at the 5 percent rate. A 4.6 percent tax rate would be established for taxable income of between $7,200 and $17,999 for single individuals and between $12,200 and $35,999 for joint filers and heads of households. A 4.8 percent tax rate would be established for taxable income between $18,000 and $49,999 for single filers and between $36,000 and $99,999 for joint filers and heads of households.
• A three-tiered nonrefundable tax credit would be created that would benefit taxpayers with federal adjusted gross incomes of less than $50,000. A $70 credit would be created for filers with adjusted gross incomes of less than $16,000, a $65 credit would be created for filers with adjusted gross incomes from $16,000 to $31,999, and a $50 credit would be created for filers with adjusted gross incomes from $32,000 to $49,999.
Some current deductions would be retained, while others would be eliminated under the proposal.
Deductions that would be retained include charitable contributions, the oil and gas depletion allowance, capital gains, college savings, military pay, military death benefits, income to prisoners of war and their spouses and dependents, foster care, physical disability modifications, Oklahoma net operating loss, and retirement and pension income.
Deductions that would be eliminated include deductions for living organ donations, nonrecurring adoption expenses, swine and poultry producers, Oklahoma Police Corps Scholarship Program, deductions for discharge of farm indebtedness income, transfers of technologies to small businesses, medical savings accounts, agricultural commodity processing facilities, the safety pays OSHA consultation service exemption, competitive livestock show awards, tax incentives for inventors and income of sponsors and tenants of small business incubators.
There would be no change to the current child care/child tax credit, earned income credit, credit for taxes paid to other states, property tax credits, sales tax relief credits, natural disaster credits or refundable credits for coal or wind.
The Oklahoma Tax Commission has calculated the average impact that state income tax changes endorsed by Step Up Oklahoma would have on Oklahoma income tax filers who fall within various federal adjusted gross income brackets. Here are the results:
• People with federal adjusted gross incomes that are less than $12,000 would, on average, end up paying either the same or less than they are paying now each year.
• People earning $12,000 to $26,000 would end up paying $4 to $32 more.
• People earning $26,000 to $50,000 would end up paying $40 to $48 more.
• People earning $50,000 to $150,000 would end up paying $85 to $97 more.
• People earning $150,000 to $1 million would end up paying $135 to $1,049 more.
• People earning $1 million-plus would, on average, end up paying $2,398 more.