In The Know: Fallin tax plan wipes out deductions for Social Security, retirement

In The KnowIn The Know is a daily synopsis of Oklahoma policy-related news and blogs. Inclusion of a story does not necessarily mean endorsement by the Oklahoma Policy Institute. E-mail your suggestions for In The Know items to You can sign up here to receive In The Know by e-mail.

Today you should know that Gov. Fallin’s tax plan would wipe out $888 million worth of deductions and exemptions, including itemized deductions, personal exemptions and adjustments for Social Security, military pay and retirement income, and  payments made to survivors after military members are killed in action. Rep. Jeff Hickman said falling natural gas prices means agencies should expect more budget cuts this year, and he is hoping for a “Plan C” on income tax reduction that would be paid for. OK Policy prepared a document comparing the major tax cut proposals made so far.

With payouts to oil and gas companies discovered to be $150 million more than was anticipated, the OK Policy Blog re-ran a blog post from 2010 explaining how we ended up on the hook.  Sand Springs educators say Oklahoma’s high school dropout rate will increase 10 percent this year due to a law requiring students to pass an additional battery of tests to graduate. Since 2008, the number of available foster care homes has fallen by 25 percent.

Terri White, Director of the Oklahoma Department of Mental Health and Substance Abuse Services, spoked with NewsOK about the many mental health issues going untreated in Oklahoma. Rep. Randy Terrill announced he is running for County Commissioner. A 5 cent bottle-deposit bill to promote recycling has been withdrawn after opposition from the beverage industry. A Senate committee dropped a bill to require a prescription for pseudoephedrine.

The Number of the Day is the percentage decline in government spending at all levels in the United States in 2011—the biggest drop since 1971. In today’s Policy Note, economist Nancy Folbre points out that our discussion of taxes and public spending at one point in time often leaves out the benefits all Americans receive over their entire lifetime.

In The News

Fallin tax plan wipes out deductions, exemptions for Social Security, retirement

A state government review of Gov. Mary Fallin’s proposed income tax plan shows that Oklahoma would do away with $888 million worth of deductions and exemptions — including commonly claimed items like mortgage interest and charitable giving — while lowering the state’s maximum tax rate. The analysis of Fallin’s proposal, conducted by the Oklahoma Tax Commission and obtained by The Associated Press under the state Open Records Act, shows that nearly one in three Oklahoma tax filers would see their liability increase. The most-used deductions and exemptions total $750 million, including itemized deductions, personal exemptions and adjustments for Social Security, military pay and retirement income. The $1,000 personal exemption is claimed on more than 1.5 million of the state’s 1.64 million tax returns. Deductions for college savings are gone, too, along with payments made to survivors after military members are killed in action and exemptions for the blind and disabled.

Read more from the Associated Press.

See also: Summary and comparison of major tax cut proposals from OK Policy

Rep. Hickman: Watch for a ‘plan C’ on the income tax

State Representative Jeff Hickman made several appearances in northwest Oklahoma on Friday to update taxpayers on the status of the newly opened 2012 legislative session. “We were very excited to have a year that we don’t have to worry about being very broke. That is true that we are not very broke,” said State Representative Jeff Hickman “We’re only kind of broke.” Despite the increase in the oil economy, declining natural gas prices have dimmed the hopes of legislatures in maintaining a flat budget. “There’s been a lot of talk for several months on state income tax and there are several plans out there, Hickman said. “My prediction is to watch for a plan C. At least that is my hope. All of those plans are a nice part of the discussion, but our house and senate leadership, our tax chairman on both sides, we are all working very hard to come up with a plan C that we would pay for as we went, if we are really serious about those reductions that would reduce the rate, but to do it responsibly and address the tax credit issue.”

Read more from the Alva Review-Courier.

How we ended up on the hook to oil and gas producers to the tune of $294 million

This week, Oklahomans learned the state was on the hook to pay oil and gas producers $294 million over the next three years in deferred tax rebates for horizontal and deep well drilling in 2010 and 2011, an amount almost $150 million more than initially anticipated. The deferred payments came about as a result of legislation, HB 2432, passed in 2010 that provided several concessions to the oil and gas industry in how horizontal and deep well drilling is taxed. Here is the blog post we ran at that time explaining HB 2432 and expressing our concern about the potential costs of tax breaks to the industry.

Read more from the OK Policy Blog.

Dropout rate expected to rise due to testing requirement

Oklahoma’s high school dropout rate will increase 10 percent this year due to a law requiring students to pass an additional battery of tests to graduate, some Sand Springs educators say. In a letter sent to the governor and members of the Legislature last week, the authors said they have heard state Education Department officials boast about the expected 90-percent success rate of the Achieving Classroom Excellence graduation requirements. They’re worried about what the future holds for those students who don’t succeed. “In Sand Springs, we fully support setting higher standards for children,” the letter read. “Although our current assessment system is cumbersome, we understand the place for assessments in public education. What we fear is that the stories of the children who fall into the lowest 10 percent are going unheard, as it is no surprise the majority of these children are economically disadvantaged and have no parental advocates. “Without options, many of these children will become a drain on the state economy, instead of an active contributor to society.”

Read more from The Tulsa World.

Find foster families

Since 2008, available foster-care homes have fallen by 25 percent, leading to concerns about the number of good placements and overcrowded shelters, according to data from the Oklahoma Department of Human Services. While the number of children taken out of their homes has decreased by 20 percent since that time, it is now creeping up, and not enough homes are available. Kinship homes provided by relatives would be expected to decrease as fewer children enter foster care, but traditional foster homes have plummeted by 24 percent, according to DHS data. At the end of the last fiscal year, about 7,400 children were removed from their homes while the state had about 7,000 available beds in all types of settings.

Read more from The Tulsa World.

Many mental health issue to tackle in Oklahoma

Terri White, director of the Oklahoma Department of Mental Health and Substance Abuse Services, visited last week with The Oklahoman’s editorial board to discuss her agency and the issue of mental health in the state. Here are excerpts: Mental illness is the third-leading cause of chronic illness in the state behind only pulmonary conditions and hypertension. It’s more common than stroke, diabetes … and I think somehow people tend to forget that. When we think about being 48th, 49th, 50th in overall health, we always think heart disease, obesity, diabetes, which is all true. What we forget is the issues of mental illness or addiction are just as high, typically 1 or 2. We’ve had a tough four years, like all agencies. We had a tougher year the first year of massive cuts than most agencies did. We took about a 7 percent cut that first year. … As a result, there was a real recognition that ‘Gosh, when we made that deep cut, some of those things that were forecast to be true came true and it’s costing us more.’

Read more from NewsOK.

Rep. Randy Terrill running for County Commissioner

State Rep. Randy Terrill officially announced today he will run for the District 2 Cleveland County Commission seat being vacated by Commissioner George Skinner. Terrill will not term limit out in the state House until 2016 and could have run again. Terrill’s time in the House during recent years has been rocky. He and wife, Angela, filed bankruptcy in 2005 and lengthy proceedings took years to resolve. In the summer of 2010, he came under fire for purchasing a new home while bankruptcy proceedings were still unresolved. Then on Dec. 22, 2010, felony charges were filed against Terrill alleging he tried to bribe fellow legislator Debbe Leftwich into not seeking re-election. A trial date has not been set for the case at this time.

Read more from The Norman Transcript.

Bottle-deposit bill tapped out for this session

A bill to promote recycling that would have required consumers to pay a 5-cent deposit on bottles and cans for soft drinks and beer, as well as on water bottles, is in the trash heap. Too much opposition from a widespread coalition made up of the bottling industry, convenience stores, grocery stores, restaurants and The State Chamber spelled doom for the measure, said Rep. Mark McCullough, the bill’s author. They complained the deposit would hurt beverage sales because the deposit would be passed on to the consumer. Consumers would get their 5 cents back when they bring the containers to recycling or redemption centers, McCullough said. Money from unredeemed deposits would go to the state, which could be millions of dollars a year, he said.

Read more from NewsOK.

Will legislature change state pseudoephedrine law?

Last week, acting only hours apart, state Senate committees in both Oklahoma and West Virginia let bills die that would have required a prescription for decongestants containing pseudoephedrine, a building-block ingredient of illegal methamphetamine. House bills remain alive in both states, but chances are dim that PSE prescription-only legislation will make it into law in either Oklahoma or West Virginia. Standing at the head of the line of obstacles to passage is the powerful pharmaceutical lobby, which – no surprise – is articulate and aggressive in defending its billion-dollar-a-year market for PSE products. Also speaking up are some of those 20 million consumers, many of whom believe it’s damn unfair for the law-abiding to be “punished” for the actions of lawbreakers. Two Oklahoma City University business professors have released a report showing “a potential $56 million hit to the state economy if a pseudoephedrine policy change results in only a small percentage increase in the number of people going to doctors because of viral respiratory infections.”

Read more from The Tulsa World.

Quote of the Day

We were very excited to have a year that we don’t have to worry about being very broke. That is true that we are not very broke. We’re only kind of broke.
Rep. Jeff Hickman, R-Dacoma, who said agencies should prepare for up to a 1% cut due to falling natural gas prices.

Number of the Day

2.1 percent

Percentage decline in government spending at all levels in the United States in 2011—the biggest drop since 1971.

Source: Oklahoma Employment Security Commission

See previous Numbers of the Day here.

Policy Note

Discussion of taxes should include the benefits over an entire lifetime

The government is not literally a mutual fund and insurance company. But in many ways, it operates like one, and greater awareness of the parallels would improve the quality of public debate over public spending. Most discussions of taxes and benefits treat either one or the other in isolation. This is not helpful. Imagine telling investors what they pay for shares of a company without explaining what they get in dividends or capital gains, or explaining the costs of insurance without specifying the benefits. What both investors and taxpayers should focus on is the difference between costs and benefits, appropriately discounted to reflect differences in their timing. But most discussions of taxes focus only on what is paid rather than net taxes (the difference between taxes paid and benefits received). Many focus even more narrowly on federal income taxes, ignoring state and local taxes and Social Security contributions. Likewise, many discussions of the social safety net describe the benefits that individuals receive without asking what taxes they have paid or will pay in the future.

Read more from Economix.

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Gene Perry worked for OK Policy from 2011 to 2019. He is a native Oklahoman and a citizen of the Cherokee Nation. He graduated from the University of Oklahoma with a B.A. in history and an M.A. in journalism.

2 thoughts on “In The Know: Fallin tax plan wipes out deductions for Social Security, retirement

  1. HB 3038 tax eliimination plan would substantially increase taxes for retirees. A moderare retirement for a married retiree couple each 66 years old with retirement income of 40000 and Social Security Income of 20000 would have a Federal AGI of 51100. Oklahoma AGI and Oklahoma Taxable Income would also be 51100 under HB 3038. The state tax liability under current law would be 473.00. For Federal and Military retirees under current law the current state tax liability would be zero. HB 3038 would result in a tax liability of 1124.00 for all retirees under the new law. HB 3038 is a disaster for retirees. HB 3038 would result in Oklahoma being being put in same category of only 4 states in the nation that have no deduction or exclusion for retirement and social security. Can you imagine the negative publicity Ok will receive over this.

  2. Thanks for the insights, Wayne. The situation of particular families will vary, but overall, there’s little doubt that retirees and veterans will pay higher taxes under HB 3038 and similar proposals. We hope you’ll do what you can to alert retirees about your concerns and encourage them to contact their state legislators.

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