Oklahoma’s legislative session came to a disappointing end late last week. Legislators now await Gov. Mary Fallin’s signature on a $6.8 billion budget that harms the state’s poorest residents and sets the Sooner State on an unsustainable fiscal path. Rather than delaying or canceling unaffordable cuts to the state’s income tax, lawmakers opted to rely heavily on one-time funds to fill a $1.3 billion shortfall. And despite the painful cuts being made to vital state programs, lawmakers still only managed to postpone, not solve, the state’s fiscal problems.
Over the past decade, Oklahoma lawmakers have repeatedly cut the state’s income tax – now resulting in more than $1 billion in lost revenue every year. The most recent reduction took place this January when the top tax rate was cut from 5.25 to 5 percent despite an official “revenue failure”. Attempts to roll back this tax cut were met with defeat—a fate that many other revenue raising options faced as well. Ultimately, proposals to increase taxes on cigarettes, alcohol, motor fuel, and purchases of services were all rejected.
Worse still, in a move that the Oklahoma Policy Institute rightly described as “deplorable,” the legislature changed the state portion of the Earned Income Tax Credit (EITC) from refundable to non-refundable, meaning that poor families earning too little to owe state income taxes will now be ineligible for the credit. This blow to Oklahomans who struggle to make ends meet on low wages has been referred to as a result of an “empathy gap” and as move that “makes the poor poorer.” This damaging policy change comes despite the EITC’s proven effectiveness and traditional enjoyment of bipartisan support, and despite the fact that it frees up only one fifth of what could have been raised by rolling back recent cuts to the personal income tax.
But what’s bad could have been worse. Thankfully, cuts to the state’s sales tax relief credit and the child tax credit were prevented, and full elimination of the state EITC was avoided. Another ray of light was repeal of the state’s “double deduction.” The bill, signed by Gov. Fallin, eliminates a nonsensical law that allowed Oklahomans to deduct their state income taxes from their state income taxes, primarily benefiting wealthy taxpayers who itemize their deductions.
Nonetheless, the overall budget – expected to be signed by Gov. Fallin this week – is a major step backward for Oklahomans. Rather than taking steps to avoid deep budget cuts, lawmakers refused to soften the blow by rolling back recent tax cuts, raising significant new revenue, or drawing on the full amount available from the Rainy Day Fund. No structural reforms were made to prepare the state for the long-term. There is no question that additional challenges still loom in Oklahoma.