A new proposal in the state of Oklahoma would increase state income 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. collections by $175.7 million. The income tax changes are part of a larger package of proposed tax increases to cover the state’s estimated $100 million budget shortfall, increase pay for educators, and fund other expenditures. The proposal would make several changes to the structure of Oklahoma’s personal income tax, resulting in some families seeing tax cuts and others seeing tax increases.
Summary of Personal Income Tax Proposal
| Capped at $22,500 |
| No cap on charitable contributions |
| 4.6% | $7,200-$17,999 (single filer) |
| $12,200-$35,999 (married filing jointly/head of household) | |
| 4.8% | $18,000-$49,999 (single filer) |
| $36,000-$99,000 (married filing jointly/head of household) |
| AGI less than $16,000 | $70.00 credit |
| AGI less than $32,000 | $65.00 credit |
| AGI less than $52,000 | $50.00 credit |
|
Standard deduction |
Reduces standard deduction amounts |
|
Personal exemption |
Disallows personal exemption |
While the two lower intermediate brackets would reduce tax liability, they would also add more complexity and progressivity to the state’s income tax structure. If adopted, this proposal would give Oklahoma eight income tax bracketsA tax bracket is the range of incomes taxed at given rates, which typically differ depending on filing status. In a progressive individual or corporate income tax system, rates rise as income increases. There are seven federal individual income tax brackets; the federal corporate income tax system is flat. as opposed to its current six brackets. The nonrefundable, per return credit would also reduce tax liability for families within the income ranges outlined above.
The remaining components of the proposal would result in tax increases, as they subject more income to taxation. Capping itemized deductions would likely increase tax liability for higher income earners, as high-income earners tend to itemize rather than take the standard deductionThe standard deduction reduces a taxpayer’s taxable income by a set amount determined by the government. It was nearly doubled for all classes of filers by the 2017 Tax Cuts and Jobs Act (TCJA) as an incentive for taxpayers not to itemize deductions when filing their federal income taxes. . Reducing the standard deduction, then, would primarily affect lower income earners and likely lead to more households having income subject to the tax. Disallowing the personal exemption would likewise make more income subject to the tax.
Altogether, the proposal is estimated to increase tax liability for 45 percent of filers, to the tune of $175.7 million in new revenue. Households with AGI of $70,000 and higher would account for more than 75 percent of the increase.
These proposed changes make the tax structure more complex and progressive, not simpler or more neutral. Oklahoma has an opportunity at true tax reform that broadens bases and lowers rates to make the state more competitive. This plan falls short of that ideal.
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