2006 Budget and Tax Proposals Fact Sheet
In the final days of the 2006 Legislative Session, the Governor and the leadership of the State Senate have each articulated their positions relative to the allocation of tax cuts and budget priorities.
Governor/House of Representatives Position
Under the Governor's proposal, which has been endorsed by leadership of the House of Representatives, the state income tax rate would be reduced from 6.25 percent to 5.5 percent. Fully annualized, this proposal will reduce tax revenue by $258 million. The Governor would phase out the estate tax, which, according to the Oklahoma Tax Commission, has an annual cost of $66 million. The proposal also implements an average raise increase for teachers in the amount of $2,400, provides an additional $90 million for higher education along with a bond issue for health care-related capital projects for the University of Oklahoma and Oklahoma State University, commits surplus Rainy Day Fund money for EDGE research endowment and a fund for tax incentive packages, as well as addresses Emergency Fund needs. This plan leaves between $115 million and $125 million to be allocated in additional spending or tax cuts.
State Senate Position
The State Senate leadership proposes to lower taxes by increasing the state's standard deduction to the federal level and eliminating the estate tax. When fully annualized, increasing the standard deduction will raise taxes by $172 million. The State Senate's budget proposal calls for a $3,000 across-the-board raise for teachers, a pay raise for public school support personnel, a $130 million funding increase for higher education, a five percent pay raise for state employees, funding to address the financially troubled Oklahoma Teachers Retirement System, maintenance needs at Oklahoma's state parks, and an additional $50 million investment in roads and bridges.
Tax Cut Analysis
The tax reduction plan offered by the Governor and endorsed by leadership of the House of Representatives reflects a greater distributional tax benefit to higher income Oklahomans. Under the State Senate's proposal, by increasing the standard deduction, greater tax savings are created for average working Oklahomans. Two specific examples of average Oklahoma families illustrate this point:
Example 1:
A married couple filing jointly, with two children, with a household income of $49,400, claiming the standard deduction:
- Tax Relief - Governor/House Plan: $183
- Tax Relief - Senate Plan: $394
Example 2:
A married couple filing jointly, with an income of $34,200, claiming the standard deduction:
- Tax Relief - Governor/House Plan: $85
- Tax Relief - Senate Plan: $375
Alliance Conclusions
As the Legislature acts to set the state's budget and tax priorities for FY'07, it is critical that they evaluate the many unmet needs of the state, prepare for our fiscal future, and ensure that our tax system distributes benefits and burdens fairly. Currently, the state maintains extensive needs in the areas of education, infrastructure, health care, and the unfunded liabilities of our pension systems. These are long-term obligations that would be endangered by large permanent reductions in the state's tax base.