The Task Force on Comprehensive Tax Reform, created by the Legislature to recommend ways to lower the state's income tax rate and stimulate the economy, suggests Oklahoma could further reduce the state's top income tax rate from 5.25 percent to 4.75 percent over the next two years. The corporate income tax rate could fall from 6 percent to 5 percent.
But to afford the income tax cut, Oklahoma would have to eliminate 47 separate tax breaks totaling nearly $353 million, including the $1,000-per-person personal exemption claimed on many tax returns, the task force said.
State Sen. Mike Mazzei, R-Tulsa and the chairman of the task force, said a nonpartisan group had rated Oklahoma's tax structure 30th in the nation for job creation and that changes were necessary for improvement.
"We must transform the tax code; it is simply wrong when a special interest group benefits from an obsolete or ineffective tax preference at the expense of hardworking Oklahomans who deserve to keep more of their hard-earned income," he said in a statement.
But opponents of the plan say low- to moderate-income Oklahomans would suffer.
"Doing away with broad-based tax benefits, such as the personal exemption, earned income tax credit, and sales tax relief credit, in exchange for a cut in the top income tax rate would reduce taxes for the wealthiest but actually increase taxes for a majority of Oklahomans," said David Blatt, director of the Oklahoma Policy Institute, a Tulsa-based think tank. "This would hit hardest the poor and middle class families who are struggling most to make ends meet in a tough economy.
"The task force recommendations to cut the income tax run counter to the testimony provided by a united chorus of economists and business leaders who strongly rejected the idea that this is the right path to ensure Oklahoma's prosperity."
Under the proposed income tax cut, and considering only the loss of the personal exemption, a family of four with $50,000 in taxable income would save about $40 a year — less than a dollar a week.
But Blatt and others say additional tax breaks targeted for elimination could wipe out those savings: child care credits, an earned income tax credit for low-income Oklahomans and deductions for blind and elderly Oklahomans.
Sen. Sean Burrage, the incoming Democratic leader in the Senate, criticized GOP leaders at the Legislature for not allowing any Democratic lawmakers to serve on the panel and for conducting meetings in private.
"Though we have only had a few minutes to review the report, it appears that the members of the task force are calling for a tax increase for a majority of Oklahomans — especially working Oklahomans — in order to provide a tax break for corporations," said Burrage, D-Claremore. "The devil is in the details; for example, there are recommendations to eliminate the earned income tax credit and tax breaks for seniors, the blind and the disabled.
"In other words, Oklahoma's most vulnerable citizens would be at risk of these recommendations were to be implemented," he said Friday.
Other credits targeted for elimination include those offered for coal production, energy-efficient residential home construction, refurbishing historic buildings, railroad infrastructure, and certain types of qualifying small business and rural venture capital investments.
Republicans, who control the governor's office and both chambers of the Legislature for the first time in state history, have been pushing for further cuts to the state's income tax rate. A quarter-percent cut from 5.5 percent to 5.25 percent is scheduled to take effect for the 2012 calendar year, and GOP leaders say additional cuts will make the state more attractive to businesses and industry.
But several of the state's leading economists warned the task force that any effort to further reduce the state's income tax should be taken with extreme care, since the tax accounts for about one-third of the money lawmakers appropriate each year. Alexander Holmes, a regents professor of economics and the chairman of the University of Oklahoma's Economics Department, told the panel last month that the idea of abolishing the state's personal income tax was "willful ignorance."