House panel approves Fallin's tax plan

February 29, 2012

By Sean Murphy, the Associated Press

Gov. Mary Fallin's plan to cut the personal income tax rate for more than 60 percent of Oklahomans by eliminating dozens of exemptions and deductions cleared its first legislative hurdle late Wednesday.

Republican House Speaker Kris Steele unveiled the 100-page bill in the House Appropriations Committee, which passed the measure on an 11-6 mostly party-line vote. The bill is one of several bills that would cut income tax being considered in the Legislature this year, and a separate proposal endorsed by conservative economist Arthur Laffer also passed the committee Wednesday.

Steele, R-Shawnee, described the governor's plan as a "work in progress" and said all the bills will be analyzed before coming to a consensus on the best way to cut the state's income tax.

"The Legislature is fully committed to a growth-spurring, responsible income tax reduction and I am pleased the governor's plan is moving forward," Steele said.

Fallin and other GOP lawmakers believe lowering the state's personal income tax burden will make the state more attractive to business and spur economic growth.

But Democrats who oppose the measure say it will hit middle-income Oklahoma families and retirees the hardest because it eliminates popular exemptions for things such as child care, military retirement, social security benefits and other retirement income.

"Today's a dark day in the state of Oklahoma when the governor and Republican leaders decide to raise taxes on middle-class families, military retirees and senior citizens, all for political gain," said House Democratic leader Rep. Scott Inman, D-Del City. "We've got to stop this train before it gets too far down the track."

Fallin's plan would consolidate the number of income tax brackets from seven to three and cut the top rate from 5.25 percent to 3.5 percent for individuals earning $35,000 or more, beginning Jan. 1. Those earning between $15,000 and $35,000 would see their rate drop to 2.25 percent, and individuals earning less than $15,000 would pay no state income tax.

Like the other income tax proposals, Fallin's calls for replacing the lost revenue by eliminating various tax credits and deductions, including about $142 million in tax credits that are used as incentives for various industries.

Under Fallin's plan, the income tax would continue to be cut by one-quarter of 1 percent each year when the state revenue grows by more than 5 percent. Fallin described her proposal as a "game-changer for the state."

"By passing this legislation, we'll be leaving more money in the pockets of working Oklahomans while helping to attract new and better jobs," she said in a statement.

An analysis of Fallin's proposal by the Oklahoma Tax Commission shows that 61 percent of the roughly 1.6 million tax filers in Oklahoma will benefit under the plan, while 31 percent will actually pay more in taxes. About 8 percent will see no change.

Those who benefit vary by income tax bracket, but people who earn between $28,000 and $40,000 will benefit the most. The biggest losers under Fallin's plan are those earning between $6,000 and $10,000 annually.

Overall, Fallin's proposal is expected to cost the state about $131 million annually in the next fiscal year and about $330 million each year after that, according to the OTC analysis. Fallin has proposed offsetting most of that lost revenue through further cuts to state programs and what she predicts will be continued growth revenue as the result of the cuts.