With Tax Rates Rising, Keating Renews Call for Reform

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Although he supports any effort to cut taxes, including repeal or legal challenge of the automatic income tax increase that became effective Tuesday, Gov. Frank Keating says that the focus of policy- makers' efforts should be elimination of the tax altogether.

"It all misses the point," Keating said. "The car has gone off the road into a ditch because of its bald tires, and it will go off the road again. We need new tires, a new tax system."

Whether the top income tax rate is 6.65 percent or 7 percent, it is too high, the governor believes, once again pointing out that Oklahoma's income tax rate is 12th highest in the country and highest in this region for the low income level at which it attaches.

"We just have to step back," Keating said.

The 1998 law also expanded the number of families qualifying for sales tax relief. That provision is also scaled back due to the economic downturn.

Too many retirees leave the state to avoid income taxes, he said, and too many companies either leave to choose to locate elsewhere for the same reason.

Keating also wants the Legislature to enact a 5.9 percent service tax, remove the sales tax on groceries, do away with the corporate franchise tax and make Oklahoma a pickup state for purposes of the federal estate tax credit.

"It's essential for the sake of Oklahoma's survival," he said.

More than 70 percent of the economy is now service based, Keating said, and is largely untaxed. He believes the overwhelming service- oriented nature of the state's economy should ensure that a service tax would replace revenue lost from repealing the income tax.

Keating said he appreciates recent calls from some Democratic lawmakers citing the need for review of the state's tax system, but there is no concrete proposal from that side of the political aisle.

"From the other side, so far there's been nothing," he said. "The problem is the Democratic leadership of the House... They haven't embraced any particular agenda."

Lawmakers are currently in an ongoing special session, Keating noted, and can come back anytime they want to address the automatic tax-increase issue.

What is needed is dramatic reform, the governor added.

"What is essential is to get rid of the income tax, lock, stock and barrel," he said. "This legislative session can be a millennium session. It can usher in Oklahoma's golden age."

Keating indicated that if he must wait until the regular legislative session to achieve systemic reform, so be it.

"We need something to pass," he said.

But when they do come back Feb. 4, the governor said, he wants lawmakers to take action on a true tax reform program.

"They'd better come back to focus on abolition of the income tax," he said.

Keating believes he is in the best position of his two terms in office vote-wise on his tax agenda. There are now 49 Republicans in the House, most of who would vote for his proposal. He could also pick up some of the 51 votes he would need for a tax package from more conservative Democrats.

"I'm for doing anything necessary that would address tax relief," he said.

However, what is needed, Keating said, is sufficient reform that affects taxpayer behavior. He said he doubts that returning some $128 annually to Oklahomans' pockets through repeal of the automatic tax hike would accomplish that. That figure is the estimated cost to a family earning $50,000 per year.

At the same time, Keating said, having another 7 percent in income every year would be a huge salary increase to retirees, teachers and average working Oklahomans.

House Democratic leaders have termed hypocritical GOP cries for repeal of the automatic income tax-hike provision.

"It's ironic that people who endorsed this legislation three-and- a-half years ago are now some of the biggest critics of the measure," said House Speaker Larry Adair, D-Stilwell. …