Oklahoma - Historic tax cut becomes law

NewsOK.com
By Michael McNutt

Without fanfare, Gov. Brad Henry signed into law Wednesday the largest tax cut in state history.

The measure -- which reduces the state's income tax rate, eliminates the inheritance tax and raises Oklahoma's standard deduction to the federal level -- is part of a budget package approved by legislators during last week's special session.

When fully implemented, the tax cuts possibly could total $627 million a year -- more than four times the amount of last year's then-record annual tax cuts of $150 million.

The governor signed 85 bills outlining the state budget for the 2007 fiscal year, which begins Saturday. Legislators adjourned last month without approving a budget; it took legislative leaders nearly a month to reach an agreement so lawmakers could return and approve the $7.1 billion budget.

"While there was absolutely no reason the Legislature should not have finished its work in the regular session that ended last month, I am proud legislative leaders of both parties joined me in doing some great things for Oklahoma," Henry said in a statement.

Under the tax relief package, the top marginal income tax rate will drop from 6.25 percent to 5.5 percent over the next three years. If the economy continues to grow, the rate would be lowered to 5.25 percent in subsequent years. The measure also includes eliminating the inheritance tax over the next three years and a phase-in that raises Oklahoma's standard deduction to the federal level.

When all those tax cuts take effect, it will amount to $627 million a year, the governor's office said. It will be $453 million annually if the income tax rate does not drop lower than 5.5 percent.

"This package will translate into meaningful tax relief for all Oklahomans," the governor said. "As a result, families will have more of their hard-earned dollars for savings and investment."

House Speaker Todd Hiett, R-Kellyville, said the tax cut measure will benefit Oklahomans for years by boosting economic growth.

"Our plan in the House of Representatives was to enact the most significant set of pro-growth policies ever passed in the history of Oklahoma," Hiett said in a statement. "I think we've achieved that goal."

Budget talks were at an impasse when Henry proposed a compromise package May 15. Hiett endorsed it while Senate Democrats held out for the increase in the standard deduction, more higher education funding and increased pay raises for teachers and state employees.

Senate President Pro Tempore Mike Morgan, D-Stillwater, said in a statement the final tax cut package includes tax cuts for all Oklahomans.

"Including an increase in the standard deduction to the federal level will put more money back into the pockets of middle-class families, ensuring Oklahoma's economy will continue to grow and prosper," Morgan said. "In this budget debate, not everyone got everything they wanted, but the compromise agreed to by both parties shows that we are doing our part to move Oklahoma forward."