Proposed State Tax Reform Would Increase Federal Taxes

By Pitts, William | THE JOURNAL RECORD, March 18, 2002 | Go to article overview
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Proposed State Tax Reform Would Increase Federal Taxes


It may come as a surprise to many Oklahomans, but they could wind up paying more taxes under Gov. Frank Keating's tax reform plan, only it would be to the federal government. It may be revenue- neutral for the state, but it wouldn't be for many state taxpayers.

The least publicized fact about the governor's plan is that Oklahomans would be paying the same amount of state taxes, while paying millions more in federal income taxes each year.

The reason is simple. Oklahoma's income tax produces about $2 billion annually, which is a deductible amount on federal income taxes of many Oklahomans. Increased sales taxes on goods and services, also paid by Oklahoma consumer tax payers, to make up this loss to the state treasury are not deductible for the federal tax.

Somehow this seemed to have escaped much mention in the early bloom for doing away with the state income tax and substituting new taxes for it. The question is, was it just overlooked, or merely carefully ignored?

According to one source the Oklahoma Tax Commission did a study for the 32-member citizen/legislator task force on tax reform. It determined Oklahomans would pay $320 million dollars more annually in federal income taxes under the Keating plan.

Some may argue this is a reason not to cut the state income tax rate, but if it is reduced without offsetting tax increases the taxpayer obviously still benefits. That definitely is not an option for the task force or the Legislature at this time.

While the governor's plan has met stiff opposition in the business community and the Legislature, to a lesser degree the same facts would apply under other plans being considered.

Rep. Clay Pope, D-Loyal, chairman of the House Revenue and Taxation Committee, proposed a plan to set the income tax rate at 5 percent and increase the current state sales tax to 6.9 percent.

Senators on the task force reportedly have come up with a plan to reduce the income tax rate from 7 to 5 percent and levy a sales tax on the same services Texas taxes, but exclude rent and financial services.

In a few weeks, the voters should have some inkling of which if any of these plans is to be submitted to them. The task force is scheduled to make its report by April 12.

It was appointed by House and Senate Democrat leaders, the governor and Republican legislative leaders.

Democrat legislators on the task force include Sen. Cal Hobson, D-Lexington, Senate president pro tempore designate, and Sen. Angela Monson, D- OKC, chair of the Senate Finance Committee; Pope and Rep. Debbie Blackburn-D-OKC.

Republican legislators include Sen. Mike Johnson, R-Kingfisher, Sen. Jim Williamson, R-Tulsa, Rep. Todd Hiett, R- Kellyville, and Rep. Forest Claunch, R-Midwest City.

Citizen members of the task force are a diverse group. They include businessmen, tax attorneys, CPAs, an economist, representatives of business groups, education and local government officials, and former legislators.

Co-chairing the group is Don Davis, Lawton, a former Democrat legislator who now serves as president of Cameron University, selected by Senate President Pro Tempore Stratton Taylor, D-Claremore, and House Speaker Larry Adair, D-Stilwell. Howard Barnett, the governor's chief of staff, is the other co- chair.

Many of the citizens and legislators on the task force previously expressed the belief that tax reform is desirable, but there are differences among its membership over what should be done.

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