Tax reform panel releases report
BY WAYNE GREENE World Senior Writer
Saturday, December 31, 2011
12/31/11 at 7:01 AM
Read the tax reform task force report.
OKLAHOMA CITY - A legislative task force studying state tax reform is calling for a gradual 0.5 percent reduction in the state's top individual income tax level and a 1 percent cut in the corporate income tax rate.
But to keep the state treasury from losing money, the income tax cut would come at the cost of some tax benefits that are popular with Oklahomans.
The wide-ranging task force report includes several other changes in state tax law, and envisions a day when the state would have no income tax - but it pairs that idea with a proposal to eliminate all tax preference items and incentive programs and carry out a review of the state's sales tax base.
"The nonpartisan Tax Foundation has rated Oklahoma's overall tax structure number 30 out of 50 states when assessing our job creation environment," the report says. "We can and must do better to shift our tax code away from special interest groups who benefit from obsolete and ineffective tax preferences and toward hard-working Oklahomans who deserve to keep more of their hard-earned income."
To reduce the state's top individual income tax rate to 4.75 percent over a two-year period, the report proposes eliminating 47 tax preferences ranging from a local development and enterprise zone incentive credit, which would save the state only $150, to eliminating the personal exemption, which is claimed by taxpayers in every income bracket and which has a $132.7 million impact.
The personal exemption is not the only popular tax break targeted by the report. The plan also would eliminate $43.2 million in food sales tax relief for poor Oklahomans and the state's $31.9 million Earned Income Tax Credit program, which helps working poor families with children.
David Blatt, director of the Oklahoma Policy Institute, called the proposal "profoundly regressive."
It would mean poor Oklahomans would pay more income taxes so that rich Oklahomans could pay less, he said.
A third of Oklahomans don't pay taxes at the top level and would get no benefit from lowering that rate, but every taxpayer uses the personal exemption and would end up paying more taxes with its elimination, Blatt said.
The Earned Income Tax Credit program benefits about 300,000 working Oklahomans who earn less than $40,000 a year, he said.
The sales tax credit - which is designed to offset the state's broadly unpopular sales tax on food - is claimed by some 400,000 Oklahomans who earn less than $50,000 a year. For a family of four in that earning level, eliminating the credit would mean an income tax increase of $160 a year, Blatt said.
Sen. Mike Mazzei, R-Tulsa, co-chairman of the task force, disagrees.
The top income tax rate hits a huge number of Oklahomans, he said, and cutting the rate would simplify the system and leave the vast majority of taxpayers with more money.
For an individual taxpayer, the top rate applies to adjusted incomes of more than $8,700. For a married couple, it kicks in at $15,000, he said.
The money for the tax cut wouldn't come from the poor; it would come from politically influential groups that don't deserve sweetheart tax deals, Mazzei said.
"It's going to take some money away from the special-interest groups, but it's going to be a net positive for lower-income people, middle-income people and higher-income people," he said.
It might sound counterintuitive, but Mazzei said that if the state properly reforms the tax codes, it not only means lower taxes for almost everyone, but it does so without reducing the state's tax revenue.
He said the proposed changes to the income tax code would produce $70.6 million in additional state revenue for education, roads and bridges and still give tax relief to the vast majority of taxpayers.
Mazzei said he intends to introduce a package of legislation to give lawmakers an opportunity to debate the issues raised in the report. As chairman of the Senate's tax-writing Finance Committee, Mazzei's support will be key to the proposal's future.
But the leader of Senate Democrats promised close scrutiny of the proposal.
"Though we have only had a few minutes to review the report, it appears that the members of the task force are calling for a tax increase for a majority of Oklahomans - especially working Oklahomans - in order to provide a tax break for corporations," said Sen. Sean Burrage, D-Claremore.
"The devil is in the details," he said. "For example, there are recommendations to eliminate the earned income tax credit and tax breaks for seniors, the blind and the disabled.
"In other words, Oklahoma's most vulnerable citizens would be at risk if these recommendations were to be implemented."
Key proposals from the Task Force on Comprehensive Tax Reform
Original Print Headline: Tax panel releases report
- Reducing the top marginal individual income tax rate from 5.25 percent to 4.75 percent in quarter-point increments over a two-year period.
- Revenue lost to the individual income tax rate cut would be partially offset by eliminating 47 tax credits and exemptions, including the personal exemption, the state earned income tax credit and the sales tax relief credit.
- Further revenue would be made up by eliminating the itemization of state and local taxes on state tax returns. (State and local taxes could still be itemized on federal returns, which are a basis for figuring state taxes, but taxpayers would no longer be able to itemize the taxes a second time on their state forms.)
- Installing income tax triggers to further reduce income tax rates if state revenue grows to certain levels compared to fiscal year 2011 revenue.
- Reducing the income tax rate another quarter point if the federal government enacts legislation to allow the state to more effectively impose sales taxes on online purchases.
- Eliminating Oklahoma's income tax by restricting state spending where appropriate, eliminating or significantly reducing all tax preference items and incentive programs, and "intensively reviewing" the state sales tax base as compared to states that have no income tax. The income tax should be eliminated sequentially over seven to 10 years and not at the cost of appropriations to core government services, such as education and transportation.
- Reducing the corporate income tax from 6 percent to 5 percent. To offset the $60 million revenue cost, a series of targeted tax credits, including credits for venture capital investments, coal production and rehabilitation of historic buildings, would be eliminated.
- Simplification of business taxes, including elimination of the franchise tax.
- Requiring corporations to use the accounting practice known as combined reporting to minimize tax avoidance.
- A constitutional amendment to exempt intangible property from ad valorem taxation. Intangible property includes such things as client lists, reputation and intellectual property.
- Further legislative consideration of the method for setting values of centrally assessed property. Centrally assessed property includes such things as utilities, pipelines and rolling stock.
Wayne Greene 918-581-8308