Facing a $1.3 billion shortage in the next year’s state budget—the largest gap in Oklahoma’s history—the Oklahoma legislature wrapped up its regular session last week with the passage of a $6.8 billion budget. The budget appropriates 5 percent less than the previous year, and leaves a remaining $360 million gap in the budget. Governor Mary Fallin is expected to sign the budget, which includes a new bond issuance for transportation, a transfer from the Rainy Day Fund, and cuts to agency spending.
Oklahoma’s budget shortfall is widely regarded as a symptom of the energy downturn. One in 5 Oklahoma jobs are energy industry driven, and as oil prices have plummeted so have related taxA tax is a mandatory payment or charge collected by local, state, and national governments from individuals or businesses to cover the costs of general government services, goods, and activities. revenues.
The state adopted several tax changes estimated to increase revenue by nearly $270 million:
- The earned income tax creditA tax credit is a provision that reduces a taxpayer’s final tax bill, dollar-for-dollar. A tax credit differs from deductions and exemptions, which reduce taxable income, rather than the taxpayer’s tax bill directly. is no longer refundable, meaning that filers will no longer receive a refund if the value of the credit exceeded their tax liability. The state credit is equal to 5 percent of the federal earned and is claimed by 355,000 Oklahoma residents. With this change, it is estimated to increase state income tax collections by about $29 million in 2017.
- A “double deduction” for state income tax payers—Oklahoma taxpayers who itemized deductions on their federal income taxes could carry over those deductions to their state income taxes, including a deduction for state income taxes—was eliminated, which is estimated to save the state $90 million a year.
- The total credit available for low-producing oil wells was capped at $12.5 million, which is estimated to save the state $120 million in revenue.
- An additional annual tax credit cap of $25 million placed on the Investment and New Jobs Tax Credit, effective for tax years 2016 through 2018, is estimated to increase income tax collections by $14 million.
- The state expects to raise $18.5 million from the sale of new license plates. The legislature passed a bill requiring Oklahoma motorists to purchase new metal license plates at a cost of $5 each during the next fiscal year.
In total, the legislature considered more than $2 billion in revenue ideas this session, including a $1.50-per-pack tax on cigarettes to help fund the state’s health care system and an elimination of a wind energy company tax subsidy after 2017. Both measures failed in the House.
After this session’s one-time transfer—that leaves the state’s emergency fund with a $241 million balance—and bond financing, the State of Oklahoma still needs to consider long-term solutions for revenue stability.
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