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Momentum building to eliminate Oklahoma's personal income tax

Republicans, many of whom ran to cut taxes, are taking a serious look at eliminating the state's individual income tax.
BY MICHAEL MCNUTT mmcnutt@opubco.com Modified: December 4, 2011 at 1:24 am •  Published: December 4, 2011
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With Republicans firmly in control of state government, reducing and possibly eliminating Oklahoma's personal income tax is moving toward reality.

A gubernatorial task force is proposing a 10-year program to significantly reduce then ultimately eliminate the tax. A legislative task force also is looking at ways to simplify the state's tax code and lower overall rates.

“In the last election cycle you had Republicans ... swept into office and the unifying message that came from that ... was to reduce the tax burden and ... size of government,” said Mike Carnuccio, president of the Oklahoma Council of Public Affairs, a conservative think tank.

He said next year some legislators will be up for re-election and voters will be asking: “did you have an effect on what you said you were going to do?”

State Treasurer Ken Miller, an economics professor and former state House budget chair, said GOP legislators and the governor need to be cautious. “We have to have a conversation based on facts ... real numbers and based on reality, not ideology.”

Republicans have long advocated cutting taxes, but when they were the minority party in the Legislature they lacked the political muscle to make much progress.

“Today it's possible and so we have to approach this issue as we do all fiscal issues responsibly because we can implement a change,” Miller said. “We've got to make sure we get it right, because if we mess up, we own it.”

Miller supports revamping the tax code and says the state's current tax policy does not enhance growth. “If we were to design an equitable and efficient tax code that would encourage entrepreneurial activity, productivity and growth, we would not end up with the tax structure we have today.”

Economic growth

Gov. Mary Fallin “believes that lower income taxes leads to more economic growth and more job creation,” said spokesman Alex Weintz. “She supports the gradual reduction of the state income tax.”

House Speaker Kris Steele also supports the gradual reduction and eventual elimination of the personal income tax.

“We'll start down that road next session by getting ineffective tax credits off the books and redirecting those savings to taxpayers,” said Steele, R-Shawnee. “While the savings should be significant, it's doubtful to be enough for immediate elimination of the personal income tax.

“Next year's state budget will likely be flat with a lot of holes to fill, so a gradual phaseout is much more likely. Along the way, some savings may also be redirected to core government services that provide legitimate public needs, not needless government growth.”

Senate President Pro Tem Brian Bingman, R-Sapulpa, “has always believed lowering the tax burden would grow the state's economy and as a result, increase state revenues,” said spokesman Nathan Atkins. “Senate Republicans believe we must look very seriously at our options to enable more private sector individuals to be innovators, entrepreneurs, and drivers of our state economy.”

New revenue needed

The state treasurer said he doesn't think the personal income tax can be eliminated without needing a new revenue source. “I don't think you can take your single largest source of revenue and eliminate it and not replace it,” he said.

Miller also would like any tax plan submitted to voters for approval.

“About 70 percent of an economy is driven by consumer spending,” he said. “If we increase sales tax to such a degree that it curtails retail activity that could prove problematic for our economy.”

Rep. Earl Sears, R-Bartlesville, chairman of the House Appropriations and Budget Committee, said he could support eliminating the income tax, but “we've got to have a discussion (on) what we're going to do to offset the loss. I still want roads and bridges, still want quality schools.”

Republicans have succeeded in lowering the top personal income tax rate since increasing their clout in state government.

Republicans gained control of the House of Representatives after the 2004 elections, took the Senate — for the first time in state history — after the 2008 vote, and secured all statewide elected official positions — another first — after last year's elections.

Since 2005, legislation has been passed reducing the top personal income tax rate from 6.65 percent to 5.25 percent; the 5.25 percent rate will take effect in the 2012 tax year. Personal income taxes bring in about one-third of the money appropriated by legislators to pay for state services.

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