Concerns among Senate leadership about Oklahoma’s long-term fiscal outlook stalled efforts to implement sweeping tax cuts, but some taxpayers will soon enjoy new benefits.
Here’s a look at how state lawmakers approached tax policy in 2023:
The Big Impact: Parents who send their children to private school or homeschool will be eligible to receive a refundable tax credit beginning in 2024.
House Bill 1934 creates a tiered tax credit system for private school families, with those earning less than $75,000 per year eligible to receive the largest credit. Here’s how the tiers are structured:
• Household income less than $75,000: up to a $7,500 credit per student
• Household income between $75,000-$150,000: up to a $7,000 credit per student
• Household income between $150,000-$225,000: up to a $6,500 credit per student
• Household income between $225,000-$250,000: up to a $6,000 credit per student
• Household income exceeding $250,000: up to a $5,000 credit per student
Homeschool families are eligible to receive a credit of up to $1,000. Any amount beyond what is owed in state income tax would be refunded to the taxpayer.
The Legislature has allocated $150 million to the program in 2024, increasing to $250 million by 2026. The bill gives preference to families earning $150,000 or less per year.
Most of the oversight of the program will fall to the Oklahoma Tax Commission, which noted in a fiscal impact statement several concerns about administering the program.
Also Notable: Lawmakers removed a “marriage penalty” in the state’s tax code that caused some married couples filing jointly to pay a slightly higher tax rate than individuals who file separately.
House Bill 1040 raises the amount subject to the state’s 3.75% tax bracket from $2,400 to $4,600. The change is expected to reduce state revenue by $5.9 million in Fiscal Year 2024 and $14.7 million in Fiscal Year 2025, according to the Oklahoma Tax Commission.
Left Behind: While the House and Governor’s office aligned on eliminating the state portion of the grocery sales tax, that reduction was not included in the Legislature’s final budget proposal.
As of April 2022, Oklahoma was one of just 13 states to levy a tax on groceries. A family of four that spends $250 per week on groceries will pay about $292 annually in state grocery tax.
Eliminating the 4.5% tax on food and food ingredients would have reduced state revenue by an estimated $370 million in Fiscal Year 2024, according to an analysis from the Oklahoma Tax Commission. While House Bill 1955 advanced through the House with just seven no votes in late March, Senate leadership showed little interest in taking up the bill, fearing that a future economic downturn could put the state in a difficult financial position.
“We’ve always held as a Senate that we need to be able to be able to afford anything long term, and tax cuts that have been proposed don’t line up with that sustainability,” Senate Pro Tem Greg Treat, R-Oklahoma City, said last week.
Personal income tax cuts, which Stitt called for in his State of the State address in February, were also left out of the legislature’s final budget proposal. Critics of a proposed 0.25% across-the-board cut, including the Oklahoma Policy Institute, said it would primarily benefit the wealthy over lower and middle-class Oklahomans.
In his weekly press availability on Friday, Stitt said he is considering calling lawmakers back to the Capitol in a special session to consider tax cut proposals. A similar tactic from the governor at the end of last year’s session proved unsuccessful.
“When we do a tax cut and we put money back into Oklahomans’ pockets, it’s not like it disappears,” Stitt said. “All we’re saying is they know how to spend their money better than the government.”