Based on rhetoric surrounding Oklahoma’s income tax debate, some lawmakers seem to think so.
Gov. Mary Fallin and other state leaders are eager to cut the top income tax rate this year. They say we can offset some of the cut by eliminating “special interest” tax credits and deductions. Yet when the details emerge, we discover that the biggest costs would fall not on special interests, but on hundreds of thousands of Oklahoma families. These families would lose several broad and effective tax credits to make way for rate cuts that primarily benefit wealthier households.
The at-risk credits include the Earned Income Tax Credit, the Sales Tax Relief Credit and the Child Tax Credit. Each of these helps between onethird and one-fourth of all Oklahoma families. In addition to providing tax relief, they are designed to encourage work, support basic nutrition and strengthen families with children.
These credits provide Oklahoma families about $50 to $200 each year. That may not seem like much, but for a household struggling to get by, it can mean the difference in being able to afford groceries at the end of the month or buying gas to get to work.
According to one study, about three-fourths of the families receiving these credits spend their tax refunds on basic needs like rent, food and medicine. For the remaining one-fourth, the credits enable just enough breathing room in the family budget to invest a little in education or job training or to enroll their kids in extracurricular activities like sports. I spoke with one new mother who said the state credits, in combination with some larger federal tax credits, enabled her to purchase a car with air conditioning so she could transport her newborn son in the summer heat.
Some state leaders argue that these families shouldn’t receive money back if they didn’t owe income taxes to begin with. However, that ignores the other taxes all Oklahomans pay to support schools, roads and other core public services. These families pay sales taxes, property taxes on homes or indirectly if they rent, and motor vehicle taxes. Oklahoma’s state and local taxes actually take a higher share of income from poor families than from middle-class families, and they take a higher share from middle-class families than from the wealthiest households. Without the broad-based credits, this imbalance would be even greater.
Besides, we need a tax system that is fair over an entire lifetime, not just when workers are at their peak earning power. These credits go to seniors who paid during their working years, young workers at the beginning of their careers, and new parents who may reduce working hours to care for children. Trading the credits to pay for cuts at the highest income levels would be a bad deal for average Oklahomans and bad for the economy as a whole.
Perry is policy analyst for the Oklahoma Policy Institute, a think tank based in Tulsa.