Oklahoma Legislature Departs From Trump Plan on Tax Deduction

Daily Tax Report: State provides authoritative coverage of state and local tax developments across the 50 U.S. states and the District of Columbia, tracking legislative and regulatory updates,...

By Paul Stinson

A bill putting Oklahoma among the first states to decouple from the federal tax code in the wake of President Donald Trump’s tax reform proposal is on the governor’s desk following Senate passage.

The legislation separates the state’s standard tax deduction from the federal standard tax deduction. It was sent May 8 to Gov. Mary Fallin (R) following Senate passage May 4 by a 39-6 tally. The measure passed the House by a 51-44 score May 2.

If signed into law, H.B. 2348 would freeze the state’s standard deduction—$6,350 for single filers, $12,700 for married filers and $9,350 for head of household.

Trump’s tax plan—a list of bullet points released April 26—calls for doubling the federal standard deduction, which is typically used by low- and middle-income earners who don’t itemize their deductions. Trump’s plan also would cut the top income-tax rate to 35 percent from 39.6 percent, and would eliminate the state and local tax deduction.

Michael McNutt, the governor’s press secretary, said the legislation is currently under review by Fallin and her staff. She is expected to take action on the bill May 9, he told Bloomberg BNA in an email.

‘Substantial’ Benefit

Oklahoma Democrats have criticized the legislation for siding with the wealthy rather than working-class Oklahomans. Opponents pointed to the potential cumulative impact of the proposed legislation in tandem with Trump’s proposal, which has faced similar criticisms.

“If H.B. 2348 is enacted and Trump’s proposal is adopted, Oklahomans who don’t itemize will lose a substantial tax benefit,” the Oklahoma Democratic Caucus said in a May 2 news release.

The legislation, authored by Appropriations & Budget Committee Chairwoman Leslie Osborn (R), is forecast to add $4.4 million and $14.5 million, respectively, to state coffers in fiscal years 2018 and 2019, according to a May 2 fiscal analysis.

$878 Million Budget Hole

The measure arrives at the governor’s desk as the state looks for ways to plug an estimated $878 million budget hole.

Gene Perry, policy director at the Oklahoma Policy Institute, a Tulsa-based independent think tank, told Bloomberg BNA last week following House passage the proposed legislation serves a defensive purpose for the state.

“The dramatic increases in the standard deduction being proposed on the federal level pose a threat to Oklahoma’s finances as long as we are tied to the federal standard deduction,” Perry said in an email.

“Decoupling protects Oklahoma from that potentially severe revenue loss,” he said. “At the same time, lawmakers should be mindful of a frozen standard deduction losing value over time to inflation. Oklahoma should come back in future years to make that adjustment.”

If passed into law—beginning with tax year 2017—the amount of the Oklahoma standard deduction would be the amount of the tax year 2017 federal standard deduction, according to the fiscal analysis.

To contact the reporter on this story: Paul Stinson in Austin, Texas, at pstinson@bna.com

To contact the editor responsible for this story: Cheryl Saenz at csaenz@bna.com

For More Information

Text of H.B. 2348 is at http://src.bna.com/oES.

Copyright © 2017 Tax Management Inc. All Rights Reserved.

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