OKPOLICY.ORG
Original at http://newsok.com/in-oklahoma-tax-cut-debate-somethings-gotta-give/article/3624420
The Oklahoman Editorial Board
IRRESISTIBLE force: Elimination of the state personal income tax.
Immovable objects: Too many to list.
That the elimination movement is a force to be reckoned with is obvious. A Republican-controlled state government is packed with pols who have long talked about ending the income tax. And the movement isn’t confined to Oklahoma: Neighbors Kansas and Missouri are also talking the talk.
Still, not since 1980 has a state eliminated its personal income tax. That was in Alaska, which was flush with oil money. Killing income tax systems is about as hard as … birthing them. Nine states don’t tax personal income; attempts to do so have been stillborn.
The default scenario is thus to manage the income tax system rather than dismantle it. That’s what Oklahoma has done in lowering its top rate from above 6 percent to 5.25 percent effective Jan. 1. Going further, though, will be tough — especially following years of severe budget cutbacks that tax cut opponents illogically blame on the rate reductions.
A compromise is to stop talking about ending the tax and start talking about what an “ideal” rate would be in order to keep funding services at an acceptable level without a significant increase in other taxes. The income tax is the state’s largest source of revenue. No way it can be eliminated without an offset.
That “ideal” rate would keep services funded but also appeal to entrepreneurs who would pay no state income tax in Texas or eight other states. Unlike property taxes, which involve direct choice on the part of taxpayers (how much property to buy), most income is taxed at a maximum rate and few of us have the option of earning no income.
Taxes are much in the news in Oklahoma now, with Gov. Mary Fallin and other key Republicans expressing a desire to make this the 10th state with no personal income tax. But the income tax has been in the news for years: The modern impetus for eliminating the income tax began after Frank Keating was elected governor in 1994.
Lawmakers have seriously examined tax credits and incentives to determine if revenues can be enhanced through reform. But no one seriously believes this would offset the loss of the income tax.
The Oklahoma Policy Institute has been issuing tax watch alerts about as frequently as the National Weather Service issues tornado watches every April. “The income tax is a vital tool for providing public services that all Oklahomans depend on,” OPI said this month. “It is the single largest source of support for education, health care, transportation, public safety and other necessities.”
Something’s gotta give in this debate. Our best guess is that we’ll still tax income 10 years from now, but we won’t tax it so much.
