Author of Oklahoma income-tax-cutting plan criticized

A researcher says there's no evidence the proposal would lead to economic growth and instead could lead to lower wages. Gov. Mary Fallin, meanwhile, is working on her own proposal to reduce Oklahoma's personal income tax rate.
BY MICHAEL MCNUTT mmcnutt@opubco.com Published: December 3, 2012
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“We think that the majority of House and Senate members support lower taxes so theoretically this is something that we should be able to accomplish,” he said. “I think a majority of Oklahomans support lower taxes.”

The governor is working with legislative leaders on trying to develop a personal income-tax-cutting proposal, Weintz said. She's also working with staff on a proposal.

“We expect it to be something that is our own and not necessarily a Laffer plan,” he said.

Fallin's plan she outlined earlier this year called for cutting the rate to 3.5 percent and reducing the number of brackets in the personal income tax code from seven to three. It called for couples making up to $30,000 a year to pay nothing in state income taxes and those making $30,000 to $70,000 a year having a personal income tax rate of 2.25 percent.

Both Fallin's and Laffer's proposals called for the money to be made up through spending cuts to state agencies and operations and cutting deductions, exemptions and economic tax credits. Both anticipated increased sales tax revenues and other economic activity coming to the state because of the lower income tax rate.

Tax collections are up

Personal income taxes bring in about 30 percent of the money legislators appropriate, or about $2 billion of this fiscal year's $6.8 billion budget. That amount doesn't include nearly $800 million of personal income tax revenue that goes to transportation, education and teacher retirement funds before the tax collections go into the general revenue fund, the state's main operating fund.

Small said states without a personal income tax consistently outperform the highest tax states.

“Consider the case in Oklahoma,” he said in an emailed statement.

“Thanks to bipartisan efforts, Oklahoma has, in the past 10 years, decreased its personal income taxes by 25 percent, eliminated death and estate taxes, freed citizens to move freely throughout the marketplace as they choose (right-to-work), enacted lawsuit reform and avoided harmful regulations.”

All the changes were recommended by the policy report Laffer prepared for the American Legislative Exchange Council, he said.

“During that time, Oklahoma has become one of the top performers in personal income growth, employment and other economic indicators,” Small said. “The state set an all-time high record for sales tax collections for the most recent fiscal year — and personal income tax collections grew over the prior year in a year when the personal income tax rate was cut again. According to the state Comprehensive Annual Financial Report, the number of middle-class taxpayers is growing and the number of low-income taxpayers is decreasing.”

Fisher said states shouldn't bother to look at Laffer's proposals, including his suggestions to reduce and gradually eliminate the personal income tax.

“If you're trying to devise sensible state economic policy, this is not where you should go,” he said.