The chairman of a tax reform task force encouraged members Thursday to recommend a structural realignment of the tax code to make Oklahoma a no-income-tax state, eliminating the state's largest source of revenue.
“The best tax systems in this economic era are broad-based with low rates that do not favor one activity over another,” said Sen. Mike Mazzei, chairman of the Task Force on Comprehensive Tax Reform, in prepared remarks. “Our system, however, is riddled with tax subsidies, deductions for political contributions, credits for remodeling old buildings, exemptions for vitamins, and incentives for business activity which would happen anyway.”
Task force members must have the courage to say no to special interest groups and focus on what is best for the state and its citizens, he said.
Mazzei, R-Tulsa, also encouraged the panel to recommend to the Legislature and the governor a plan to eliminate millions of dollars of special interest tax subsidies to lower the income tax rate and broaden the state's tax base.
One-third of budget
Personal income tax collections are the state's largest source of revenue, bringing in nearly a third of the $6.5 billion budget that runs most of state government; estimates call for personal income taxes to bring in about $1.8 billion during this fiscal year, which started July 1. Before the economic downturn, the revenues were more than $2.5 billion a year.
Proponents of eliminating the personal income tax call for eliminating many of the tax credits and exemptions. It's estimated the state loses about $5.6 billion annually through various tax credits and exemptions; eliminating all of them would be impractical, but another legislative task force reviewing the exemptions and credits hopes to come up with a grading system that could lead to ridding those not producing jobs or benefits to the state.
“I think we're going to get rid of a lot of the credits, I really do,” said Rep. David Dank, co-chairman of the task force, and who also heads up the other legislative committee looking at tax credits.
Dank said the sales tax rate could be increased to offset the loss of personal income tax revenues. Sales taxes constitute the state's second-largest source of revenue at $1.7 billion. Some suggest sales tax collections would increase because Oklahomans would have more money to spend with a reduced or zero income tax. More businesses would locate to the state because of the lack of a personal income tax, they said.
“It's just been proven in other states that those states grow and prosper without that income tax,” said Dank, R-Oklahoma City, after the meeting. “We need to look at a more consumption-based tax. I think that's something that's going to come. I think we're going to at least reduce the personal income tax in virtually every year from now on out.”
Dank said he would like legislators to consider adding some services to be taxed as well as removing some exemptions that have been added over the years. He would like to see the sales tax on groceries eliminated, however, because food is a basic need.
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