McAlester News-Capital, McAlester, OK

State news

February 19, 2012

Fallin tax plan wipes out deductions

OKLAHOMA CITY — A state government review of Gov. Mary Fallin’s proposed income tax plan shows that Oklahoma would do away with $888 million worth of deductions and exemptions — including commonly claimed items like mortgage interest and charitable giving — while simplifying returns and lowering the state’s maximum tax rate.

The analysis of Fallin’s proposal, conducted by the

Oklahoma Tax Commission and obtained by The Associated Press under the state Open Records Act, shows that nearly one in three Oklahoma tax filers would see their liability increase.

The most-used deductions and exemptions total $750 million, including itemized deductions, personal exemptions and adjustments for Social Security, military pay and retirement income. The $1,000 personal exemption is claimed on more than 1.5 million of the state’s 1.64 million tax returns.

Deductions for college savings are gone, too, along with payments made to survivors after military members are killed in action and exemptions for the blind and disabled.

“Even after eliminating those exemptions and deductions, a majority of taxpayers in every income tax bracket will save money,” Fallin’s spokesman Alex Weintz said Friday. “We are leaving more money in the wallets of more Oklahoma taxpayers. We think they’ll appreciate that, and in addition to saving money, we think it will also help stimulate the economy.”

The analysis shows that while a majority of Oklahoma taxpayers, about 61 percent, would see their taxes reduced under the governor’s plan, the tax burden would increase on nearly 510,000 Oklahoma returns, or 31 percent. About 8 percent of Oklahomans would see no change.

Those earning between $30,000 and $40,000 per year will benefit most, the review shows, as more than 80 percent of taxpayers in those brackets would see their tax liability reduced.

The personal income tax currently accounts for about $1.9 billion of the state’s $6.4 billion this year. That figure would be trimmed to about $1.6 billion when fully implemented.

Fallin’s proposal has not yet been drafted into a bill and introduced to lawmakers.

“By lowering our income tax rate, we will make Oklahoma more competitive,” Weintz said. “It will give us the second-lowest income tax in the region and one of the lowest in the country, which she feels will make Oklahoma more attractive to businesses deciding where to locate or expand.”

David Blatt, the director of the Tulsa-based Oklahoma Policy Institute and an advocate for increased funding for state services, said he’s concerned eliminating deductions such as the personal exemption will unfairly target some taxpayers.

“In the current tax code we’ve said we want to provide additional assistance to seniors, families with children, veterans and others. Our concern is that some vulnerable segments of the population may end up in the loser category,” Blatt said. “Mainly upper income folks, those without children and those under age 65, generally will do better.

Blatt said he’s also worried that eroding the state’s tax base will lead to deeper cuts to areas like education, transportation and public health.

The governor’s office acknowledged that many Oklahomans who currently earn less than $15,000 and who receive a small subsidy from the government for qualifying for certain exemptions would not benefit under the plan.

“Our plan, I think, reflects what people think taxes are, which is a way of raising revenue, not a welfare system,” Weintz said.

Oklahoma currently has seven tax brackets ranging from 0.5 percent for single taxpayers earning $1,000 or more in taxable income to the top rate of 5.25 percent of taxable income of more than $8,701. Under Fallin’s proposal, the number of income tax brackets would shrink to three starting in January 2013. Individuals earning $35,000 or more would be taxed at the new top rate of 3.5 percent, those earning between $15,000 and $35,000 would be taxed at 2.25 percent and individuals who make $15,000 or less would not pay any income taxes.

Fallin also wants to implement a revenue-growth trigger that would further reduce the income tax by one-quarter of 1 percent each time state revenues grow by at least 5 percent.

Neither Senate President Pro Tem Brian Bingman nor House Speaker Kris Steele have specifically endorsed Fallin’s plan, but both have said they support the concept. And it’s clear the Republican-controlled Legislature is eager to endorse a tax cut they can tout on the stump during an election year.

A more far-reaching legislative proposal by Rep. Leslie Osborn to completely abolish the state’s income tax over the next decade already has passed a House panel and has 23 Republican co-authors.

“I think that we need to be very methodical in our approach so as not to jeopardize funding for core services of government,” said Steele, R-Shawnee.

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