Okla. Senate OKs bill to cut, eliminate income tax

OKLAHOMA CITY (AP) — Oklahoma's personal income tax would be deeply cut and ultimately eliminated under a bill that passed the Senate on Monday over the objections of Democrats who say it will decimate funding for critical state services such as roads and public schools.

The GOP-controlled Senate voted 30-17, mostly along party lines, in favor of the bill to slash the state's top personal income tax rate from 5.25 percent to 2.5 percent, beginning in January. The income tax, which accounts for about one-third of the money lawmakers appropriate every year, would continue to be phased out by one-quarter of 1 percent each year until it's eliminated by 2022.

An analysis by the Oklahoma Tax Commission projects the proposal will cost the state nearly $1.6 billion, or about one-quarter of current state spending, by 2016. But Sen. Clark Jolley, who introduced the measure, says those figures don't take into account the growth in revenue he claims will come from increased economic activity.

"I don't think that includes the reality that we're going to see growth in our economy because of this," said Jolley, R-Edmond.

Jolley maintains that reducing the tax rate will make Oklahoma more attractive to companies and that allowing taxpayers to keep more of their money will help generate other forms of tax revenue.

Jolley's proposal is one of four separate plans to reduce the state income tax that are being considered by the Legislature. His proposal and a House measure sponsored by Rep. Leslie Osborn, R-Mustang, are based on an economic study by conservative economist Arthur Laffer and endorsed by a local conservative think-tank, the Oklahoma Council on Public Affairs.

Both proposals initially helped offset some of the lost revenue by eliminating dozens of exemptions and deductions that individuals claim on their state income taxes, but opposition to some of those have caused both Jolley and Osborn to backtrack. Specifically, plans calling for the elimination of exemptions for Social Security benefits and retirement income are being removed from both measures after growing opposition from groups that represent retirees.

"We did hear that many people had concerns," Osborn said. She said she planned to amend the bill to restore those exemptions that benefit seniors.

Osborn and several GOP House members who back her plan proposed slashing government spending for higher education and state employee health benefits, eliminating several corporate tax breaks and forcing poor people to pay more for medical services and child care to offset some lost revenue. Based on OCPA recommendations, their plan to cut state spending eliminates dozens of programs for an estimated $850 million in savings over the next two years.

"The goal here is to put together good ideas from several different places and start reaching a consensus on what's possible, both politically and practically, in order to find enough savings to phase out our income tax," said Rep. Charles Ortega, R-Altus, one of 31 House members who have endorsed Osborn's bill.

Senate Democrats argued Monday that both proposals threaten to dramatically reduce revenue in a state that already ranks among the worst in public spending on education and health care.

"The idea that we can pay for this without a fundamental change in how state government operates is just disingenuous," said Sen. Tom Adelson, D-Tulsa. "We're supposed to fund health care. We're supposed to fund education. We're supposed to fund roads. We're supposed to fund public safety.

"There's no other way to pay for this unless you want your third grader to have class with 350 of their friends."

Jolley's bill now heads to the House; Osborn's bill is scheduled for a hearing on the House floor this week.

A separate bill endorsed by Gov. Mary Fallin would cut the top income tax rate by 5.25 percent to 2.25 percent and reduce the number of income tax brackets from seven to three. Another measure by Sen. Mike Mazzei would cut the top rate from 5.25 percent to 4.75 percent over the next two years. Both bills offset much of the lost revenue by eliminating various tax credits, exemptions, and deductions.

House and Senate leaders have said they hope to develop a plan that incorporates some of the best features from each of the income tax proposals.

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Sean Murphy can be reached at www.twitter.com/apseanmurphy