Thursday, March 1, 2012
BY MICHAEL MCNUTT, Oklahoman
Gov. Mary Fallin's personal income tax reduction plan cleared its first legislative hurdle Wednesday when a House committee voted to advance it to the full House for consideration.
But her proposal, which calls for cutting the top personal income tax rate by nearly half, has a tough road ahead as lawmakers struggle to eliminate economic tax credits, some of which are necessary for her plan to succeed.
The House of Representatives Appropriations and Budget Committee voted 9-8 to defeat an amendment by Rep. Don Armes, R-Lawton, to remove a tax credit for the state's wind industry from the measure, House Bill 3061. And the committee later voted not to pass HB 2876, which would have extended or imposed a two-year moratorium on 29 tax credits, which would have saved the state $29 million in the upcoming fiscal year and $37.3 million in the 2014 fiscal year.
The author of the measure, Rep. David Dank, R-Oklahoma City, who led a five-month effort last year looking at tax credits, was able to salvage another measure, HB 2978, which sets criteria for tax credits to be issued, only by removing the ban on transferable tax credits; another House panel last week failed to pass a bill that would have outlawed six transferable credits.
Fallin's proposal depends on the elimination of all six of those transferable credits as well as more than 30 others.
The Appropriations and Budget Committee voted 11-6 to pass HB 3061, despite a lawmaker saying the measure would result in hefty tax increases for retirees.
Retirees may be hurt
Rep. Mike Brown, D-Tahlequah, said he asked certified public accountants in his district to look at Fallin's proposal; he said they told him it would greatly increase the taxes paid by retirees.
“Our seniors are going to be hurt out of this,” Brown said. “You need to double-think this. This bill probably needs a lot of work on it.
“Our tax system is not broken in Oklahoma,” he said.
An analysis of Fallin's plan provided by the governor's office shows that the proposal would result in a tax increase for 31 percent of the state's 1.8 million taxpayers. It shows 8 percent would see no change and 61 percent would see a reduction in taxes.
House Speaker Kris Steele, R-Shawnee, authored the bill on behalf of the Republican governor. Steele said it was one of several income tax-cutting measures being considered by lawmakers.
“What we hope to do is take the best ideas from all of the proposals that are being introduced ... and ultimately pass a plan that is truly in the best interest of Oklahoma,” Steele said.
Fallin defended her plan, calling it a “game-changer for the state.”
“This reform measure will provide immediate tax relief to a large majority of Oklahoma families while delivering a far more attractive tax climate for businesses deciding where to locate,” she said.”
Fallin's plan calls 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.
Fallin's plan would take effect Jan. 1, and 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 plan 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.
As proposed, after the personal income tax cuts take effect in 2013, income tax rates would be cut by an additional quarter point in any year in which the state sees 5 percent revenue growth.
Third of budget
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 the proposal for reducing a big chunk of the state's revenue and unfairly increasing taxes on some low- and moderate-income residents.
Fallin proposed to pay for the income tax cuts by eliminating tax loopholes, carve-outs and other exceptions.
Fallin said the revenue lost by reducing the income tax rates also would be paid for by continuing efforts to eliminate government waste and making government more efficient and effective. New revenue growth will pay for the tax cuts, she said.
She is pinning hopes on legislation passed last year that is intended to improve the state's business climate, such as changes in workers' compensation and alterations in the way lawsuits are treated in court cases ranging from personal injury to medical malpractice.
Fallin's income tax plan will cost the state about $1 billion in revenue. Taking into account her projections, lawmakers will have to find about $100 million in the 2013 fiscal year, which starts July 1, to pay for it and more than $300 million in the 2014 fiscal year to fund it, she said.
The committee also passed another income tax-cutting proposal, HB 3038, which has 31 co-authors. The measure, by Rep. Leslie Osborn, R-Mustang, would phase out the state's personal income tax over 10 years, and cut it by more than half next year.