Oklahoma Legislators Propose Tax Exemption for Overtime Pay

[Nikki]

How many bad ideas and errors can you find in this:

Two Oklahoma Democratic lawmakers are sponsoring legislation that would exempt overtime pay from state income taxes (SB 1132) and urging Congress to provide a similar exemption at the federal level (SCR 43).

Two Oklahoma Democratic lawmakers are sponsoring legislation that would exempt overtime pay from state income taxes (SB 1132) and urging Congress to provide a similar exemption at the federal level (SCR 43).

One sponsor, Sen. Kenneth Corn (D), said the state government has been giving tax cuts and tax credits to "those who can afford to pay a little more" and has forgotten the average working Oklahoman. Rep. Glen Smithson (D) is sponsoring the bill in the House.

The proposal won a favorable reaction from Oklahoma AFL-CIO President Jimmy Curry.

"What the workers of Oklahoma tell me about overtime is it puts them in a higher tax bracket and gets ate up by taxes," Curry said. "This is a win-win for both the economy and the workers of Oklahoma, because I know from personal experience they will spend this money right back into the economy of Oklahoma, every penny of it."

Senate Copresident Pro Tem Glen Coffee (R) said he also likes the idea.

SB 1132 would be effective for tax years beginning after December 31, 2008.

[BBFlatt]

If it passes I suspect a lot of small business owners will suddenly be working a lot over overtime (at least according to their records).

[webhick]

I see a lot of employees doing unauthorized overtime. Lord knows they already do now, so why the frick are we giving them an added incentive to do it more?

[Quixote]

I see a lot of employees doing unauthorized overtime. Lord knows they already do now, so why the frick are we giving them an added incentive to do it more?

In every job I have ever had "unauthorized overtime" means working without pay. A tax break on $0.00 in income isn't much of an incentive.

[Quixote]

If it passes I suspect a lot of small business owners will suddenly be working a lot over overtime (at least according to their records).

I assume you mean small business owner/officers. Most already work a lot of overtime, but don't record it. Their reward is usually a huge year end bonus. They would, no doubt, record their O/T more carefully if the bill is passed. Sole proprietors and partners work no overtime at all. I foresee a lot of new corporations and LLC's if the bill passes.

"What the workers of Oklahoma tell me about overtime is it puts them in a higher tax bracket and gets ate up by taxes," Curry said.

My quick and dirty research reveals that the highest tax bracket for OK income tax is 6.25% for taxable income above $21,000. O/T is going to put you into a higher bracket only if your base pay is less than $21,000/year. And who wouldn't trade a quarter percent tax rate increase for a 50% pay rate increase?

[Nikki]

The whole "It puts me in a higher bracket" argument is, at best, a joke.

Not a single penny earned before the overtime pay enters the calculation gets bumped into a higher tax bracket.

Tax brackets are incremental: the higher rates apply ONLY to taxable income above the ceiling of the lower bracket.

Not a single taxing jurisdiction in the United States imposes an income tax set up to apply a higher percentage rate to all of the taxable income once a higher bracket is entered.

[ArthurRubin]

Not a single taxing jurisdiction in the United States imposes an income tax set up to apply a higher percentage rate to all of the taxable income once a higher bracket is entered.

It may be pointed out the the oil severance tax proposed in a recent California election might have provided such a tax: $1 / barrel if the total production is less than X barrels per year, $2 / barrel if the total production is between X and Y, etc. The Legislative Analyst wasn't sure.

I would not be surprised if some income surtax operated in a way that you say "[N]ot a single taxing jurisdiction in the United States" operates."

Even if not, there are easily situations where the effective marginal tax rate is over 100%; $1 of additional income can result in 20 cents less "after-tax" income.

[Nikki]

Even if not, there are easily situations where the effective marginal tax rate is over 100%; $1 of additional income can result in 20 cents less "after-tax" income.

Not that I'm challenging you, but could you cite and explain one? I love to learn new things.

The only possible things I can think of are (1) earning too much money while on Social Security and (2) earning too much money while qualified for the EITC.

[webhick]

I see a lot of employees doing unauthorized overtime. Lord knows they already do now, so why the frick are we giving them an added incentive to do it more?

In every job I have ever had "unauthorized overtime" means working without pay. A tax break on $0.00 in income isn't much of an incentive.

In NH, if someone works, you have to pay them and it doesn't matter if it's authorized or not. The only thing you can do is keep reprimanding them in writing and eventually fire them (because if you don't go through the three warnings process, they collect unemployment). But all the while, they keep raking in that overtime. And you can't make them stop working. You can tell them to go home, but they won't listen. Then they'll cry to the labor board about being yelled at when you never even raised your voice. And then if you fire them on the spot for insubordination, they collect unemployment because you didn't go through the process. And if you go through the warnings process right there, they cry to the labor board that they didn't have any time to correct their actions and they collect unemployment.

Employees don't need any more power over their employer in this state.

Thank god this crap is going down somewhere else. I just hope the spillover doesn't reach up here.

[Quixote]

Even if not, there are easily situations where the effective marginal tax rate is over 100%; $1 of additional income can result in 20 cents less "after-tax" income.

Not that I'm challenging you, but could you cite and explain one? I love to learn new things.

The only possible things I can think of are (1) earning too much money while on Social Security and (2) earning too much money while qualified for the EITC.

That can happen with the federal income tax because, for taxable income less than $100,000, the tax is computed using tables, not the rate schedule. So instead of a smooth curve, you get a jump every $50. A single person with taxable income of $35,049 has a tax liability of $5,314. If his taxable income were $35,050, his tax would be $5,326. The effective marginal rate on that last dollar would be 1200%.

That has nothing to do with the tax bracket myth, of course, which is based on a misunderstanding of marginal versus average rates.

[ArthurRubin]

Not that I'm challenging you, but could you cite and explain one? I love to learn new things.

The only possible things I can think of are (1) earning too much money while on Social Security and (2) earning too much money while qualified for the EITC.

I was thinking of a more complicated issue, involving a private pension not subject to Social Security. If "you" are receiving SS income on your spouse's account, there's a 100% offset, and the pension is taxable, to boot. Hence each $100 you receive converts $100 of non-taxable income into $100 of taxable income.

I don't know if the increase in medicare part B costs due to taxable income, combined with SS offsets you mention in point (1), might also produce a marginal tax rate over 100%. But you could come close, and, combined with state taxes, it might go over.