Gov. Fallin giving her second State of the State address at the state Capitol.

Joe Wertz / NPR StateImpact

Four Things You Should Know About Gov. Fallin’s Income Tax Reduction Plan

  • Joe Wertz

Joe Wertz / NPR StateImpact

Gov. Fallin giving her second State of the State address at the state Capitol.

In yesterday’s State of the State address, Gov. Mary Fallin detailed her “bold” plan for reducing — and ultimately eliminating — the state’s individual income tax.

The official language of The Oklahoma Tax Reduction and Simplification Act will be included in a bill filed by House Speaker Kris Steele, R-Shawnee.

Fallin’s proposal would simplify the tax code by reducing the number of personal income tax brackets to three from seven and cut income taxes across the board.

But there are four things you need to know about this plan.

1. This is a Phase-out Plan

This is an income tax phase-out plan that relies upon “growth triggers.” After 2013, the income tax rates would be cut one-quarter point in every year during which Oklahoma experiences a 5 percent revenue growth.

2. The Direct Costs

Fallin’s income tax plan will cost the state about $1 billion in revenue, said Secretary of State Glenn Coffee, who serves on the governor’s Cabinet and serves as a chief policy adviser, The Oklahoman‘s Michael McNutt reports.

The personal income tax is the state’s largest single revenue source, and it accounts for about one-third of funding for legislative appropriations. This fiscal year alone, the individual income tax amounts to roughly $1.9 billion of the $6.4 billion budget.

To pay for the drop in revenue, lawmakers will have to find about $100 million for FY 2013 and $300 million for FY 2014.

Joe Wertz / NPR StateImpact

Monday's State of the State address drew a packed crowd to the House chamber at the state Capitol.

3. How Fallin Proposes We Pay for it

To help pay for the income tax reduction, Fallin and company are proposing eliminating tax loopholes and exceptions. About $133 million would be realized by nixing 39 tax credits and personal exemption deductions. Almost all Oklahoma tax-filers claim personal exemptions.

The child care income tax credit would also be eliminated.

In 2010, the child care tax credit was claimed on 362,470 income tax returns, according to the Tax Commission. It resulted in the state returning $28.9 million to those taxpayers, The Oklahoman reports.

4. Who the Losers Might Be

About half the Oklahomans in the new bottom tax bracket would be negatively affected by Fallin’s income tax plan because the earned income tax credit would be eliminated, the Tulsa World reports. Low-income tax filers who claim the EIC can receive funds beyond their tax liability.

House Minority Leader Scott Inman, D-Del City, to The Oklahoman:

“If you’re a working family that makes $40,000 to $50,000 a year with children, odds are you will see a tax increase nevertheless under the governor’s plan.”

The Oklahoma Policy Institute praised parts of Fallin’s plan but says eliminating the child tax credit, sales tax relief credit, and other tax preferences would still “unfairly increase taxes on many low and moderate-income seniors and families with children.”