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Gov. Mary Fallin details state personal income tax reduction plan

BY MICHAEL MCNUTT Modified: February 6, 2012 at 10:22 pm •  Published: February 6, 2012

Oklahoma couples making more than $70,000 a year would see their state personal income tax rate drop nearly in half and families making up to $30,000 a year would pay no state personal income taxes under a plan Gov. Mary Fallin proposed Monday to lawmakers.

“Over time, our income tax would be phased out for every Oklahoman,” she said.

Fallin provided details of her personal income tax reduction in her State of the State address to a joint session of the House of Representatives and the Senate. The 49-minute speech kicked off this year's legislative session, which runs through late May.

Fallin called for reducing the number of brackets in the personal income tax code from seven to three. The income brackets range from individuals making up to $1,000 to individuals earning $8,700 and over. The rates range from one half of 1 percent of taxable income to 5.25 percent.

The second-year GOP governor, who received applause 45 times during her speech, received applause on her income tax plan from Republican legislators, who control both the House and the Senate. Democrats were silent.

“There are still losers in the governor's plan,” said House Minority Leader Scott Inman, D-Del City. “If you're a working family that makes $40,000 to $50,000 a year with children, odds are you will see a tax increase nevertheless under the governor's plan. We in the House Democratic caucus refuse to allow the budget to be balanced on the backs of working families in Oklahoma, and we will oppose that plan at every opportunity. “

House Speaker Kris Steele, R-Shawnee, will file a bill that contains the governor's proposal, a spokesman said.

Steele said he is reviewing the plan, along with income tax-cutting plans proposed by lawmakers.

“All income tax plans will get careful consideration as we determine the best way to achieve a growth-spurring, responsible tax reduction,” he said.

About the plan

Fallin's plan, which would take effect Jan. 1, calls for couples making up to $30,000 a year to pay nothing in state income taxes. Those making $30,000 to $70,000 a year would have a personal income tax rate of 2.25 percent. Families making more than $70,000 a year would see their rate drop from 5.25 percent to 3.5 percent.

For individuals, the plans calls for no state income tax on those making less than $15,000 a year, a tax rate of 2.25 percent for those who earn $15,000 to $35,000 and a 3.5 percent rate for those making $35,000 and above.

Personal income taxes bring in about one-third of the state's legislatively appropriated budget. For this fiscal year, personal income taxes are estimated to bring in $1.9 billion of the $6.4 billion budget.

The Oklahoma Policy Institute, a nonprofit group that analyzes state government spending, criticized Fallin's proposal for reducing a big chunk of the state's revenue and for unfairly increasing taxes on some low and moderate-income residents.

“Gov. Fallin's plan would bust a huge and permanent hole in the budget,” said David Blatt, director of the Oklahoma Policy Institute. “After three straight years of cuts to services, further tax cuts should not be a higher priority than educating our children, training our workforce, fixing our infrastructure and ensuring public safety.”

Fallin proposed to pay for the income tax cuts by eliminating tax loopholes, carve-outs and other exceptions. She calls for eliminating 39 tax credits and the personal exemption deductions, which costs the state about $133 million. Nearly all Oklahoma taxpayers claim personal exemptions, according to the Oklahoma Tax Commission. Of about 1.8 million returns filed in 2009, the latest year that information is available, about 1.5 million taxpayers claimed personal exemptions of $1,000 per eligible household member.

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