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Lawmakers are told to be careful in cutting Oklahoma's personal income tax

Robert Dauffenbach, an economist, told a state house panel that changes to Oklahoma's tax code the past 12 years helped lead to a nearly $2 billion a year reduction in tax receipts.
BY MICHAEL MCNUTT Published: November 6, 2012

Changes made to Oklahoma's tax code the past 12 years have helped contribute to a nearly $2 billion annual reduction in tax receipts, a University of Oklahoma economist told a House of Representatives panel Monday.

Robert Dauffenbach, associate dean and director of the Center for Economic and Management Research at OU's Price Business College, said diversifying the tax base and further reducing the state income tax rate would improve Oklahoma's business climate.

House Speaker Pro Tempore Jeff Hickman said reducing and possibly eliminating the state's personal income tax is not a quick fix. He led an interim study on the tax that brings in about one third of the money legislators appropriate each year.

“Anything you can do to broaden the tax base to reduce or eliminate the income tax and quit penalizing the income but rather look at tax and spending is positive for the economy,” said Hickman, R-Fairview.

“If we can spread that tax burden out more widely across the state … it's a positive and will quit penalizing people who are making incomes.

“We're not going to find one magic bullet,” he said.

Hickman discussed lowering the state's income tax, which has a top rate of 5.25 percent, by levying a tax on a variety of services, with members of a House revenue and taxation subcommittee. He said reducing the rate to 4 percent is a realistic goal.

Lawmakers this year considered several proposals to cut the top personal income tax rate, from reducing it a fraction to slashing it more than half. None passed, mainly because of difficulties of finding ways to make up for the lost revenue.

“If we're serious about eliminating the income (tax) and reforming our tax code, then everything should be on the table,” Hickman said. “What we've been talking about lately at the Capitol has been tax cuts, not really reforming the code.”

Closer look urged

Dauffenbach said lawmakers who have talked of eliminating or reducing the personal income tax should step back and evaluate changes made to the state's tax code in the past 12 years.

Dauffenbach said Oklahoma's state tax receipts have been reduced nearly $2 billion annually. The changes have occurred through consumer purchasing patterns, such as buying more items on the Internet where many items are bought without sales tax being paid, and legislative changes to tax codes.

Legislation was passed and approved from 2004 to 2006 that lowered the top income tax rate from 6.65 to 5.25 percent.

The top bracket affects about 56 percent of Oklahomans. For single taxpayers and husband/wife taxpayers filing separately, the 5.25 percent rate is applied on a taxable income of $8,701 and higher.

The top personal income tax rate was 7 percent 12 years ago; reducing it to 5.25 percent has resulted in a 25 percent loss of state revenue through personal income taxes, Dauffenbach said. Personal income taxes this fiscal year are expected to bring in about $2 billion of the $6.8 billion budget appropriated by lawmakers.

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