Thursday, February 9, 2012
By WAYNE GREENE, World Senior Writer
Oklahoma's income tax system is flat on top and oddly graduated underneath.
On Monday, Gov. Mary Fallin announced a plan to cut the state's income tax system dramatically. Starting next year, Fallin wants the state's top income tax rate to be 3.5 percent. That rate would kick in on net income over $70,000 a year for a married couple filing jointly.
The current comparable top rate is 5.25 percent, which kicks on net income over $15,000 a year.
That's correct: The state's top tax bracket - and there are six other lower tax brackets - kicks in at $15,000 a year, about $80 a year less than the gross earning of someone working full time at the U.S. minimum wage.
If you file individually, the top rate kicks in on net income above $8,700 a year, more than $2,400 a year below the gross income of the poverty level.
A search through state law books shows that the current tax brackets more or less started in 1985, though at that time it had 18 graduated levels, topping out at a 17 percent rate on net income over $94,000.
In 1988, the Legislature cut the tax rate, but it did so by eliminating the top eight brackets. That meant the new top tax rate - 10 percent - started at a net income of $23,000 a year. Since then, the Legislature has cut taxes the same way several times, by eliminating the top bracket, but lawmakers never indexed the remaining tax brackets to inflation, so the top tax bracket has gotten progressively lower as inflation has driven relative earnings higher.
And so, in Oklahoma, a poor man can feel like a millionaire because they're paying taxes at the same rate.
Oklahoma income tax primer
Oklahoma's income tax dates to 1915.
In 1931, when the Oklahoma Tax Commission was formed, the tax of an income of $10,000 was 2 percent. On an income of $100,000, the tax was 5 percent. In 1951, when the state had 32 tax brackets, the top rate started at $10,000.
The state's "two-method" system of tax brackets started in 1979. At that time there were 18 tax brackets, with the top rate in method 2 being 17 percent on income over $94,000. Today a large majority of tax filers use method 2.
Taxing issue
Current tax brackets
Married couple filing jointly
Annual income Amount paid
Up to $2,000 1/2 of 1 percent of taxable income
$2,000 to $5,000 $10 plus 1 percent over $2,000
$5,000 to $7,500 $40 plus 2 percent over $5,000
$7,500 to $9,800 $90 plus 3 percent over $7,500
$9,800 to $12,200 $159 plus 4 percent over $9,800
$12,200 to $15,000 $255 plus 5 percent over $12,200
$15,000 and over $395 plus 5.25 percent over $15,000
Source: Oklahoma Tax Commission
Gov. Mary Fallin's proposal
Married couple filing jointly
Annual income Amount paid
$30,000 or less No state income taxes
$30,000 to $70,000 2.25 percent
Over $70,000 3.5 percent