SENATE REPUBLICANS: NO INCOME-TAX CUTS THIS YEAR

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Senate Republican lawmakers will not vote to cut Oklahoman’s income-tax rates this year even though the state has more than half a billion dollars in growth revenue, the chamber’s leader announced Wednesday.

If no reductions are approved, Oklahoma’s top income-tax rate of 4.75 percent will be higher than the income-tax rates imposed in three bordering states: Arkansas, Colorado, and Texas.

Instead of cutting the income tax, Senate President Pro Tempore Greg Treat said Senate Republicans will vote to reduce a portion of the combined state-and-local sales tax rate on groceries.

“To be clear: This is the only tax relief the Senate will be seeking this year,” Treat said in a press release.

A Democratic leader quickly praised Republicans, saying the plan is in line with the priorities of her caucus.

“Senate Democrats have supported and continue to support cutting the state portion of the sales tax on groceries, giving relief to hard-working Oklahomans and their families,” said Sen. Kay Floyd, D-Oklahoma City. “We will also continue to advocate for comprehensive tax reform that truly benefits those who need it most. We need a long-term structure that will give our citizens certainty about how those policies will impact their finances, as well as the critical functions of government Oklahomans rely on, such as public education, health, mental health, public safety, infrastructure, and other vital services.”

Treat’s announcement did not indicate what goods will be defined as “groceries” by the Senate legislation, which Treat said will be taken up on Feb. 22.

Oklahoma’s state sales-tax rate is currently 4.5 percent. The tax is imposed on most goods, including grocery purchases, and is combined at the point of sale with county and city sales taxes on the same goods. The combined state-and-local sales-tax rate on groceries can run above 11 percent.

The Senate bill would shave off 4.5 percent from the total combined state-and-local tax rate, only on the sale of whatever items are defined as groceries, and consumers would still pay local sales taxes on those food purchases.

It is not known if, or how much, actual tax reduction would be provided under the Senate proposal.

If the state portion of the sales tax on groceries is lifted, local communities could offset that change by raising local rates.

Counties may impose a sales-tax rate of up to 2 percent, while cities are allowed to impose any sales-tax rates that receive voter approval.

An Oklahoma Tax Commission document shows that as of May 18, 2023, city sales-tax rates ranged as high as 5 percent and many counties had rates below the 2-percent maximum they are allowed to charge, meaning both county and city tax rates could be increased in many parts of the state.

While proponents of exempting groceries from the state sales tax have argued low-income families will benefit, researchers have found that is not necessarily true.

The Tax Foundation found that the poor actually pay more in sales taxes when states exempt groceries.

In April 2022, the Tax Foundation found that the poor actually pay more in sales taxes when states exempt groceries because the sales-tax rate on other goods is typically kept higher to make up the difference.

“The poorest decile of households experiences 9 percent more sales tax liability with a grocery tax exemption than they would if groceries were taxed and the general rate were reduced commensurately,” the Tax Foundation reported.

Most states also impose the sales tax on prepared food even when groceries are exempted. Since low-income families tend to rely on prepared food more than upper-income families, lower-income families disproportionately pay more in sales tax on food items even in states that exempt groceries, the Tax Foundation noted.

According to the U.S. Department of Agriculture, more than one-third of every dollar spent on food purchases in 2022 was spent eating out.

In March 2023, the State Chamber Research Foundation similarly noted that calls to exempt groceries from state sales tax are “popular, yet often economically counterproductive.” If a sales tax is applied broadly with fewer exemptions, that translates into a lower sales-tax rate that “limits distortions in economic decision making,” the foundation found.

The State Chamber Research Foundation also noted that “compared to other types of taxes (such as income tax), broad-based sales taxes generate less influence on the individuals’ economic decisions.”

Gov. Kevin Stitt and House Speaker Charles McCall, R-Atoka, have both advocated for cutting the state’s personal income tax along with reducing the state portion of the grocery sales tax.

The State Board of Equalization recently approved the final revenue certification that determines how much money is available to lawmakers during this year’s session, finding that the state has $11.12 billion in recurring revenue available this year, compared to $10.58 billion in recurring revenue available in June 2023, an increase of $543 million.

Stitt and McCall have said that provides plenty of financial room to cut the income tax.

But Treat dismissed those calls.

“To ensure state services and recent critical investments in education and infrastructure remain intact in the long and short term, there is no way to do more at this time,” Treat said. “I appreciate my Senate colleagues who have worked on this issue for months and who also agree this is the best path forward. We have done a tremendous job of holding the line and not giving in to cheap political wins or rhetoric that would have put the state on the wrong fiscal path.”

Stitt and McCall have both noted that state government has sufficient savings to prevent major cuts even in the event of a major downturn, meaning tax cuts are now easily affordable.

A recent review conducted by the Legislative Office of Fiscal Transparency (LOFT) found that Oklahoma state government would require $6.14 billion in savings to cover all associated downfalls over a five-year period if the state faced an economic recession comparable to the “great recession” of 2008-to-2010.

But the LOFT report showed state government has at least $8.9 billion in total savings that could be tapped, after accounting for many funds.

Treat said eliminating the state portion of the grocery tax will save Oklahoma taxpayers nearly $400 annually. But that average papers over the significant difference in spending among families and associated tax savings from grocery-tax reduction.

As income increases, so does spending on food since people tend to purchase more fresh food and higher-quality products as their income rises.

The U.S. Department of Agriculture reports that in 2022 “households in the lowest income quintile spent an average of $5,090 on food” while “households in the highest income quintile spent an average of $15,713 on food.”

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