A proposal to cut the state's top personal income tax rate by more than half and eventually eliminate it won't be a priority again next year by a conservative think tank, which made it the centerpiece of its legislative agenda this year, a policy impact director with the group said Wednesday.
“We'll leave that proposal as it is, but we'll be spending most of our time in our efforts advocating for other OCPA priorities, including workers' compensation reform, pension reform,” said Tina Dzurisin after discussing tax changes in a debate sponsored by the Oklahoma Institute for Child Advocacy.
“Our priority has shifted. We just think that there are more common-sense reforms that we can make in other areas that will strengthen Oklahoma's economy and make us more competitive without expending so much energy on a proposal that the Legislature didn't feel like they were quite ready to put through.”
The Oklahoma Council of Public Affairs last year worked with Arthur Laffer, an economist who first gained prominence as a member of former President Ronald Reagan's economic policy advisory board, in developing the income tax-cutting plan.
The proposal, which sought to cut the state's top personal income tax rate of 5.25 percent by 3 percentage points next year down to 2.25 percent, was included in legislation that eventually was scaled down. It and four other measures seeking to cut the personal income tax failed to pass.
One of the other major tax bills contained an income tax-cutting proposal by Gov. Mary Fallin, who is developing her legislative agenda for next year.
“The governor is going to continue to push for lower taxes of some kind,” said Alex Weintz, the governor's communications spokesman. “It will not be identical to her tax plan last year. The governor has always said when she campaigned for office and when she got into office that she thinks that lower taxes will lead to greater growth that will create more jobs.
“We want to make sure that we listen to legislators and listen to our constituents, but we think that the people of Oklahoma and the Legislature continue to support lower taxes,” Weintz said.
David Blatt, director of the Oklahoma Policy Institute, which promotes fair funding of state government services, spoke Wednesday against reducing the personal income tax rate. Blatt was among those leading the charge last session opposing income tax-cutting proposals. He said doing away with broad-based tax benefits, such as the personal exemption, earned income tax credit and sales tax relief credit, hit the poor and middle-class families and called it the wrong approach to lower the top personal income tax rate.
“We still think tax cuts are the wrong priority when we continue to fall short of funding schools and services to those with disabilities and mental health issues,” Blatt said. “It's not going to be the path to lift more people into the middle class and make our state more prosperous.”
Dzurisin said her group will continue to support reducing the personal income tax rate and other ways to update the tax code to lower the burden to taxpayers.
“We would totally be in support of a tax cut,” she said. “We need tax reform to be competitive with other states.
“We're in the midst of a region that is very competitive when it comes to the tax code,” Dzurisin said. “We just saw Kansas implement the largest tax cut in state history and Texas beneath us has no income tax, so whatever we can do to make our tax code more competitive with those other states in terms of attracting businesses and jobs to Oklahoma we should be looking at that and do it.”
The five income tax-cutting bills considered by lawmakers didn't call for increasing another state tax or tapping another source of revenue to replace the lost revenue.
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.
The Oklahoma Council of Public Affairs plan originally called for reducing the top personal income tax rate to 2.25 percent and continuing to reduce it by 0.25 percentage points a year until the tax was eliminated in 10 years.
Fallin's plan 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 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.
Blatt said the personal income tax rate isn't a major factor in recruiting businesses. Cutting taxes won't produce a strong economy, he said.
Legislators have been discussing pay for state employees, who have gone six years without an across-the-board pay increase. Some proponents of cutting the personal income tax rate say a pay increase could be approved this year along with a scaled-back plan to cut the income tax.