Personal income tax phase-out in Oklahoma backed by House panel

February 14, 2012

The Tulsa World


OKLAHOMA CITY - A House panel easily approved a bill Monday that would phase out the state's personal income tax over 10 years, starting with cutting it by more than half by next year.

The House Budget Subcommittee on Revenue and Taxation voted 9-1 with no debate to send House Bill 3038, which has 23 Republican co-sponsors, to the House Appropriations and Budget Committee.

Rep. Leslie Osborn, the key sponsor, said the measure would cost the state about $715 million in lost revenue in the 2013 fiscal year, which starts July 1, by cutting the state's top personal income tax rate from 5.25 percent to 3 percent. But that would be made up by eliminating tax credits and loopholes, she said.

Osborn, R-Mustang, said increased economic revenue brought about by Oklahomans who have more money to spend and more businesses coming to the state would make up for the revenue lost by additional cuts until the personal income tax was eliminated.

Rep. Mike Brown, D-Tahlequah, who voted against the measure, said he was concerned about what would happen if other revenue sources couldn't make up for the loss of revenue generated by the personal income tax.

Personal income taxes bring in about one-third of the money appropriated by legislators. Lawmakers appropriated $6.4 billion this fiscal year; about $1.9 billion is to come from personal income taxes.

The proposal has the support of Arthur Laffer, an economist who first gained prominence as a member of President Ronald Reagan's economic policy advisory board. Laffer, who says his Laffer Curve shows that low tax rates boost economic growth, said during an Oklahoma City speech in November that the proposal would put Oklahoma's competitive economy into a top-tier economic policy environment.

HB 3038 would lower the state's top personal income tax rate of 5.25 percent to 2.25 percent in 2013 and then gradually lower it until the rate is zero in 2022.

Reducing the income tax rate to 3 percent would be paid for by cuts in nonessential spending, along with the elimination of most personal tax credits, exemptions, deductions and exclusions, Osborn said.

She told committee members it would not be necessary to cut core services, such as public safety, education, health and transportation, or increase any other tax rates, including property and sales tax.

However, Osborn said it's likely that some of the 78 appropriated state agencies would receive some cuts.

Osborn said she supports Gov. Mary Fallin's proposal to reduce and gradually eliminate the state's personal income tax. However, it could take 20 years or longer to eliminate the income tax under the governor's plan because it has economic triggers that would have to be met until the income tax rate could be reduced.

Fallin's plan calls for reducing the top 5.25 percent rate to 3.5 percent next year and reducing the number of income tax brackets from seven to three, with individuals earning less than $15,000 a year not required to pay personal income taxes. The income tax rate would be cut by an additional quarter point in any year in which the state sees at least 5 percent revenue growth.

"Projections are (that) hers ... could take much longer ... because of the triggers and the size of the triggers," Osborn said. "Ours is a firm 10-year eradication."

Osborn said she wants to work with supporters of the Republican governor's plan and the sponsors of three other bills that call for reducing the personal income tax.

She said she is confident that some form of a personal income-tax measure will pass this year