All Oklahomans get income tax relief

OKLAHOMA CITY (AP) _ A tax reform plan advanced by a special task force will put hundreds of dollars more into the pockets of Oklahoma's largest group of taxpayers, those with modest incomes, officials

Sunday, April 14th 2002, 12:00 am

By: News On 6


OKLAHOMA CITY (AP) _ A tax reform plan advanced by a special task force will put hundreds of dollars more into the pockets of Oklahoma's largest group of taxpayers, those with modest incomes, officials say.

But the state's wealthiest individuals will be the biggest winners, which is inevitable when the top tax rate is slashed, authors of the report say.

It also is by design. One of the reasons for the tax reform effort was to make the state more attractive to wealthy individuals, including retirees, as a way of generating economic development.

Along the way, the task force brought more equity to the tax system by increasing deductions for many taxpayers and thereby reducing their taxable income.

The plan, if adopted by the Legislature, would end two decades of built-in tax increases for those who do not itemize their deductions.

The automatic tax increases have occurred because the state has not adjusted its standard deduction and personal exemptions to reflect inflation, as has the federal government and some other states with income tax systems.

According to the latest figures from the Office of State Finance, $447 million of $822 million in income tax cuts proposed in the task force plan will go to households of incomes of over $70,000.

Households with those income levels will receive an income tax cut of about $3,000, on average, state finance officials say.

Many wealthy taxpayers also will benefit greatly from a new 2.35 percent capital gains tax. Under the old system, capital gains were treated as income and taxed at 7 percent.

The plan also reduces estate taxes. Retirees would get an extra benefit because the plan retains current exemptions on pension and Social Security income and because taxpayers over 65 qualify for higher personal exemption and standard deduction allowances.

Taxpayers of all income levels will get significant reductions, officials say.

For instance, a couple with two children earning between $30,000 and $49,000 will see their income taxes cut $570, on average, OSF figures show.

A single taxpayer earning $20,000 to $29,999 will get a $325 reduction, on average; while a couple earning $30,000 to $49,999 will get a $371 million income tax cut.

A single person earning $50,000 to $69,999 will get an income tax cut of a whopping $953. A couple in the same category gets a $681 cut, while a family of four receives an $823 reduction.

Final recommendations of the task force include instituting a 4.5 percent sales tax on services to make up most of the revenue loss from the income tax cut. Cigarette taxes and gasoline taxes also are raised, while business gets a break by elimination of the corporate franchise tax.

Despite the sales tax change and other increases, individual taxpayers will still enjoy an overall reduction of hundreds of dollars a year in most instances, officials say.

Shawn Ashley, OSF spokesman, said the amount of additional taxes individuals will pay because of the sales tax on services is not as much as many might think.

``For every $100 of income tax savings, a person would have to buy $2,222 of taxable services to pay that $100 back to the state,'' Ashley said.

OSF figures show that a single person in the $20,000 to $29,999 income range will have a net tax cut of $249 after paying extra sales taxes and gasoline taxes.

A family of four in the $30,000 to $49,999 range would have a net reduction of $453 and a family of four in the $50,000 to $69,999 would have an overall cut of $694 after allowing for the increases.

Ashley said that in 1998, households earning between $20,000 and $75,000 accounted for 44 percent of all income tax revenue flowing to the state treasury.

Under the current system, most Oklahomans pay at a 7 percent rate, but many pay up to 10 percent under a second method of calculating income taxes that allows taxpayers to take advantage of high federal deductions.

Under the task force plan, all taxpayers would pay at a 4.5 percent rate.

The plan provides $32 million to give tax credits for low-income Oklahomans, many who would qualify for rebates.

In its final report, the task force said broadening the sales tax base should be good for long-term economic growth, creating new jobs while cutting tax rates for individuals and investors.

``The Task Force recommends that the Legislature itself adopt these changes as a whole or, as an alternative, send them to a vote of the people as a complete package,'' the report said.

The tax reform plan would be phased in over a three-year period beginning in 2004.

The 32-member task force was headed by Don Davis, Cameron University president, and Howard Barnett, Gov. Frank Keating's chief of staff.

At its final meeting, the state Chamber of Commerce raised concern that the plan will mean increased costs by businesses through imposition of the sales tax on services.

``While this plan shifts the overall tax burden more to business, the task force believes that the economic stimulus to come from individuals' increased spending capacity and the increased availability of capital should lift all boats,'' the report said.
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