Taylor proposes adopting the Texas tax system
Marie Price The Journal Record
After years of listening to how much better Texans fare tax-wise than Oklahomans, Senate President Pro Tempore Stratton Taylor, D- Claremore, wants to give voters a chance to settle the matter — by adopting the entire Texas tax system, in one fell swoop.
Down on the second floor of the State Capitol, Gov. Frank Keating doesn’t think Taylor is serious, terming the floated plan a charade to stall consideration of the governor’s own tax-cut plan.
“Instead of just trimming around the edges, we need to consider a much bolder approach,” Taylor said.
The Senate leader said officials often hear of how “friendly” the Texas tax system is to both businesses and individuals.
“I think we owe it to voters to give them an opportunity to decide whether it’s right for them,” Taylor said. “I’m sure Oklahomans would jump at the chance to eliminate the income tax and the sales tax on groceries.”
He wants to start by asking researchers at the University of Oklahoma and Oklahoma State University to study the Texas approach and report back to him.
“By turning the project over to the universities, we can take politics out of the mix and examine the proposal on its merits alone,” Taylor said.
In general, Texas has no personal or corporate income tax and does not tax groceries. Its local property taxes tend to be higher, however. In 1995, according to data from the Texas comptroller of public accounts, Texas property taxes per capita ranked 19th among the states, at $755, compared with Oklahoma, which ranked 45th, at $321. However, Taylor said that with annual increases in property valuation, such as occur under a new Oklahoma law, he believes the gap between the two states has narrowed. Texas also has a higher corporate franchise tax than Oklahoma.
“We can look south of the border and see that it has worked down there,” he said.
Taylor said it would take several constitutional amendments and statutory changes to make the switch, the whole package would have to be approved in order to become law.
“I think it’s important to consider the Texas tax code in its entirety,” he said. “It would have to be a comprehensive package. If we don’t consider a uniform adoption of every aspect of the Texas system, we might miss out on some potential benefits for Oklahoma.”
Taylor said that removing the state, county and municipal sales tax from groceries is a good example.
“In many Oklahoma communities, that would mean a 10 percent reduction in grocery bills,” he added.
The pro tem said that he does not believe state or local governments would lose money, because taxpayers would spend the money they save, cycling it back into the economy.
“If we could take the sales tax off groceries, that would be the single greatest thing we could do for middle-income folks,” he said.
Doing away with the income tax, Taylor said, would save Oklahomans up to almost 7 percent, money they would see in their paychecks.
“We would have more money flowing into the economy and attract more taxpayers into Oklahoma,” he said.
States such as Florida, Texas, Tennessee and Washington, which do not have state income tax, have experienced faster economic growth than states such as Oklahoma, Taylor added. He pointed out that Texas spends more per student on both common and higher education than does Oklahoma.
“Their tax system allows for more economic growth,” he said.
Taylor said that Oklahoma voters approved last fall’s car-tag cut by about 80 percent.
“We gave voters a chance to speak their minds on tags,” he said. “We should give them a chance to have their say on Texas taxes as well. They can compare the two tax codes, consider their individual situations and decide what is best for the state.”
Taylor said he believes OU and OSU can do the necessary research and draft a proposal for lawmakers to consider before they go home at the end of May. If not by then, he said, he intends to ask Keating to call a concurrent special session to consider the idea.
The proposed amendments would be placed on a special election ballot in the near future.
“The quicker we can give voters an opportunity to decide this question, the better,” he said.
Later, Keating said he does not believe Taylor intends to push the Texas plan.
“This is simply a motion to stall,” said the governor, who has called for reductions in the income and estate taxes as well as doing away with the franchise tax.
“It is the income tax that chills the willingness of people to come here,” Keating said.
Keating appeared ready to call Taylor’s bluff, as the governor sees the pro tem’s proposal.
“Anything we can do to reduce taxes, I’m for,” said Keating, saying that he would back voters getting the opportunity to vote on the idea. “I don’t think they’re serious about this.”
“They don’t like to give taxpayers back their money,” Keating said of the Democratic legislative leadership. “They want to study it so that nothing will ever be done.”
A better approach, Keating said, would be to pass a right-to-work law, enact an administrative workers compensation system and adopt a tax proposal suggested in August of 1999 by the Citizen’s Task Force on Taxation.
That panel recommended sweeping changes to the state’s individual income and motor vehicle taxes, as well as modification of the estate tax, elimination of the franchise tax and repeal of the waste tire recycling fee.
The task force recommended changes to the current individual income tax code to provide a simplified, efficient system using a modified flat tax process.
The group recommended elimination of the two-method computation currently required to compute individual income taxes and a lowering of the top marginal rate on personal income.
The current standard deductions would be increased to provide income tax relief to lower-income Oklahomans, while task force members said the tax base would be broadened by eliminating the wide variety of deductions, exemptions and credits.
Under current law, a taxpayer has the option of itemizing deductions in the same manner as allowed for federal purposes or taking a standard deduction, which is either $1,000 for individual returns and married taxpayers filing separate returns or 15 percent of Oklahoma adjusted gross income, up to $2,000, for joint returns. Each taxpayer, spouse and dependent is allowed a personal exemption of $1,000 and an additional $1,000 exemption is allowed for taxpayers who are blind or at least 65 years of age and meet certain income eligibility requirements.
The task force developed three plans to serve as examples of appropriate income tax systems.
Each proposal used federal adjusted gross income as the starting point in calculating tax liability and eliminated the Method II tax computation option. Impacts were calculated assuming that the respective plan had been in place in 1997, the most recent year for which data was available.
Plan 1 would eliminate virtually all deductions, exemptions and credits, including the standard deduction and dependent exemptions.
Income would be taxed at a flat rate of 3.98 percent, compared with a top marginal rate of 7 percent for Method I and 10 percent for Method II in 1997. The plan would increase the average tax liability for virtually every income class below $40,000, having a greater impact on lower- and middle-income classes, but would increase total individual income tax revenue by only $27,000, making it revenue- neutral.
Plan 2 would differ from Plan 1 in that it would allow a standard deduction of $7,450 for single taxpayers or those who are married and filing separately or $14,900 for those married and filing jointly. An additional $4,000 exemption would be allowed for each dependent and remaining income would be taxed at a flat rate of 6 percent.
Under Plan 2, a couple with two children, earning $22,900 and filing jointly, would pay no Oklahoma income tax. The plan would lower average tax liabilities for lower- and middle-income classes, while those with incomes exceeding $50,000 would pay more taxes on average. Plan 2 would decrease total revenues from the individual income tax by $1.6 million, which the task force said makes it virtually revenue neutral.
Plan 3 differed from Plan 2 only in that it lowered the income tax rate from 6 percent to 5.75 percent.
Under Plan 3, average tax liabilities would decrease for almost every income class except the class of taxpayers having a federal adjusted gross income greater than $1 million. The revenue impact to the state would be an estimated $80.6 million.
The group recommended elimination of the current Oklahoma estate tax and enactment of a pickup tax equal to the federal credit for state estate taxes. Also proposed was enactment of a generation- skipping transfer tax equivalent to the federal credit allowed for generation-skipping taxes paid to the state, which would mean that Oklahoma also would be a pickup GST state.
The task force also recommended that the franchise tax be repealed.
Domestic and foreign corporations doing business in Oklahoma are subject to an annual franchise tax. The tax is imposed at a rate of $1.25 per $1,000 of capital used, invested or employed in the state, with a maximum tax levied per taxpayer of $2,000.
Taylor said he had hoped that Keating would take a more open- minded approach to the Texas plan.
“That’s one of the main problems with this building,” he said. “Elected officials tend to criticize ideas, not because they don’t like them, but because they were generated by someone from a different political party. I think we should ignore party labels and have an open and honest debate about the Texas plan.”
Taylor asked what better way there could be to address Texas’ competitive advantage over Oklahoma than to adopt that state’s tax code.
“This is a serious proposal and I hope that Governor Keating will give it the serious consideration it deserves,” Taylor said. “That’s the least he can do for the citizens of Oklahoma.”
2001Copyright
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