Finding offsets must be part of efforts to reduce Oklahoma income tax
AS it was this time last year, tax cut fever in Oklahoma is starting to register on the thermometer. This year, however, more emphasis seems to be on tying tax cuts to bona fide offsets.
Tax cut fever has centered on reducing the state's personal income tax, the top rate for which is now 5.25 percent. A year ago, Gov. Mary Fallin and Republican legislators were eager to reduce the top rate as part of a plan to eventually eliminate the income tax.
What started as a hot rush to enact change, with a Republican governor and solidly GOP Legislature, melted down into disagreement in the 2012 session. Nothing happened. The income tax cut ran headlong into a resistance to specific revenue offsets.
We urged caution in cutting the income tax without offsets. While we think the top rate should be below 5 percent, we also know that offsets will safeguard priority spending areas.
The quest to reform Oklahoma's tax credit system continues apace. Reformers must convince a majority of lawmakers that the people taking advantage of targeted tax breaks should be given lesser weight than the population as a whole. More tax system restructuring momentum was in evidence last week when a University of Oklahoma economist said diversifying the tax code could facilitate a lower personal income tax without jeopardizing government services.
Suggested is an extension of the sales tax to a variety of services. Lawmakers know it will be tough to convince Oklahomans that they're better offer paying less in income taxes while being assessed on services that have never been subject to a sales tax. This could include doctor visits.
Sales taxes are levied at the time of purchase; income taxes are withheld from paychecks. Consumers feel the pinch of sales taxes immediately. Also, class warfare arguments will be brought to the table — the “wealthy” will get a break (lower income taxes) while everyone else will pay more (sales taxes on services). That argument is hollow because almost all working Oklahomans pay income tax and the 5.25 percent rate kicks in at a low income level.