Analysis: Would you like to pay less taxes? I’d like to pay less taxes. Who wouldn’t? For the 2024 Oklahoma Legislative Session, everyone is talking about a tax cut, and several proposals are flying through the halls of the Capitol.
Gov. Kevin Stitt has asked the Legislature to pass a tax cut of 0.25 to lower the state income tax from 4.75% to 4.5%. The reduction in tax collections would be approximately $250 million.
The leaders in the Senate have wisely discussed caution to await the latest financial analysis on tax collection projections that come out this month. They would like to see the effects of the tax reductions for both personal and corporate income taxes that passed two years ago.
No one really knows what a reliable base of state revenue is after the huge post-COVID blowout in federal spending that boosted both business and personal spending and created a huge, but unsustainable, surge in tax collections.
How about reducing the tax rate but eliminating some unnecessary income tax credits or exemptions that don’t help produce great jobs? That way, the effect on tax collections could be revenue neutral. This is the path of true tax reform and exemplifies how Oklahoma could eventually become a No-Income Tax State.
The Tax Expenditure Report for 2021 & 2022 has been released and details the cost of all income tax credits, rebates, exemptions and deductions. My least favorite tax credit, the Zero Emission Facility Credit that I repealed when I was in the State Senate, still costs the state $77.5 million (for only 39 businesses) because of its 10 year life span.
The Personal Exemption, which is an add-on because we already receive the “Standard Deduction,” costs $126 million. There are many other items to choose from, but I hope legislative leaders can dial in on the hard work of true tax reform to lower the tax rate and eliminate special tax deals that don’t help us produce great jobs for more growth and prosperity.
Description: An income tax credit is allowed based on the amount of electricity generated by a qualified zero-emission facility placed in service before July 1, 2017. The credit is available for 10 years after the qualified zero-emission facility is placed in service. Credits earned on or after January 1, 2014, are not transferable; any credit earned, but not used, is refundable in an amount equal to 85% of the amount of the credit.4 Estimate: $77,512,000 / 39 Returns Data Source: Income Tax Returns
Description: Estimate: Data Source: Reliability: 68 O.S. §2358 Individual taxpayers may either itemize their deductions or claim an Oklahoma standard deduction. If using itemized deductions, those will be the same as claimed for federal income tax purposes. The amount of the Oklahoma standard deduction is equal to the amount of tax year 2017 federal standard deduction. $547,286,000 / 1,711,230 Standard Deduction Returns $82,090,000 / 154,132 Itemized Returns Oklahoma Individual Income Tax Micro-Si Description: A personal exemption of $1,000 in lieu of the federal personal exemption is allowed in calculating Oklahoma taxable income for an individual taxpayer. Estimate: $121,668,000 / 1,803,587 Returns Data Source: Oklahoma Individual Income Tax Micro-S.
About the author: Mike Mazzei, CFP®, MPAS®, is the President of Tulsa Wealth Advisors. A Certified Financial Planner professional, and Master Planner Advanced Studies, he created The Financial Freedom Process™ to help individuals leverage their wealth in order to help them achieve their lifetime visions. Mike is a former Oklahoma State Senator (Dist. 25 in Tulsa) & OK Sec. of Budget. He is the proud husband to Noel and father to 5 great kids.