Notes from the Task Force on Comprehensive Tax Reform meeting 9-15-2011
Sen Mike Mazzei statement: as co-chair I’d like to thank everyone for participating. Appreciate willingness to serve. Thanks to staff. NCSL will give overview of tax structures in other states. Tax force to recommend proposals for simplification and fairness. Gives great opportunity. If we do this well, we can send plans to legislature that will raise average incomes. We will have to confront severe structural problems. It’s designed for 20th century manufacturing. But 21st century much of our business is service-oriented. Best tax systems are broad-based with low rates that don’t benefit one industry over another. Our code is riddled with incentives. Rep. Dank is doing great job bringing those giveaways to light. We can’t afford not to act. Retailers are losing business to online giants who arent’ collecting taxes, costing our cities 150M per year. We can and must do better. I would encourage the following: 1. Permanent solution dealing with taxation of tangible property. 2. Plan to eliminate subsidies and lower taxes. 3. Make OK a no income tax state.
Dank: would be nice to reduce income tax to 3% or lower to compete with Colorado, move more to a consumption tax and eliminate unneeded tax breaks.
Mandy Rafool, National Conference of State Legislatures
Most important tax to states as a whole is personal income taxes. In 1970 it was only 24%, now it’s 34%.
Biggest burden on business comes from taxes on business property
Basic tax structure in OK: seven personal income tax brackets, corporate income tax, sales tax (4.5% is 36th highest in nation, but when average local taxes are added in, OK has 7th highest sales tax)
Recent tax reform efforts in other states: in 2005, Ohio made sweeping reforms phased in over five years. First was commercial activity tax on businesses, phased out corporate franchise tax, eliminated tax on tangible personal property, reduced sales tax, increased tobacco tax, reduced personal income tax. Goal was to modernize an outdated system that had high income tax. They were successful in lowering tax burden and revenues were in line with projections, but then the economy tanked, so it’s unclear what the impact is yet.
In 2006, Texas created the Margin tax which replaced the franchise tax which has new definitions of a taxable entity. Only sole proprietorships and general partnerships. It’s a tax on taxable margin. So far, it has underperformed on collections, but it did take effect in 2008, so the recession played some part in that.
Michigan has had several reforms over the last 30-years. In 2007, replaced the Single Business Tax and put Michigan Business Tax and a business income tax in its place. Then in 2011, replaced all that with a flat corporate income tax with no tax credits except for small businesses.
We’ve seen a movement over the past three years to look at tax credits. I suspect these conversations will be continuing
Michael Carnuccio, OCPA President
Should OK constitution be amended to exempt all intangible property from the ad valorem tax? Yes. No surrounding states generally tax intangible personal property. Accortding to Tax Foundation, only 10 states generally tax Intangible personal property, meaning all the other states have competitive advantage. It’s difficult to administer and penalizes and stifles research, innovation, development and capital generation.
Should OK tax business activity as currently or should some be replaced? In a perfect world, all would be eliminated, but realistically, OK should avoid taxes that penalize activity, those that occur during production. If it must exist, be for limited, defined core functions of govt.
Should OK income tax be reduced? Yes. It should be eliminated over time. First, eliminate all tax credits and deductions and use that revenue to lower the overall rate. Gradually reduce the rate to zero over 7-10 years.
In FY2012, $4.974B appropriated. In FY2013, let’s assume 4% growth which would add $209M which would go towards income tax reduction. Rate would be 4.75%
Tax cuts generate economic activity. Prior to FY05, annual sales tax growth rate was 2.67% for four years prior. Once tax cuts began, sales tax revenues increased 6.37% per year on average.
If OK had no income tax, single person making $30K would have $950 more per year. Family of four making $50K would save $1373/yr
Ideal tax system: no personal income tax, sales, corporate and premium taxes on the state level. Broad based with the lowest rate possible. Municipal and county govt tax types would include sales and property taxes.
Not only do I think we should eliminate the income tax, the people of Oklahoma feel that way as well.
David Blatt, Oklahoma Policy Institute director
The ideal tax system should be based on following principles: Adequacy, Equity, Simplicity, Neutrality and Balance.
Equity: horizontal equity says people with similar circumstances should pay similar amounts. Vertical equity says those who can pay more, should.
Oklahoma is a low tax state. Combined state and local govt spending is 18% less than national average.
Almost every agency has seen budget cuts of 10-20% over the past three years. This has affected families and children.
We face misalignment between costs of maintaining government and amount we spend. It’s called a structural budget deficit.
Oklahoma’s tax system falls short in area of equity. Low and moderate income Oklahomans pay higher share of income in taxes. That’s a product mainly of sales taxes. The progressivity of income tax only partially offsets regressivity of sales tax. The wealthiest 5th of households received 50% of the tax cut benefits.
Agree with OCPA that corporate income tax should be the core of any business tax. But many companies avoid corporate taxes by exploiting loopholes, tax shelters and accounting schemes. Adopting combined reporting would greatly reduce that. A majority of states with corporate income tax use combined reporting. OK and NM are only states west of Mississippi that haven’t done so.
In addition to corporate income tax, OK should have one other as a backstop.
Failure to collect online sales taxes puts local brick and mortar businesses at disadvantage, ruining the horizontal equity of tax system.
I’m a vigorous and unabashed cheerleader of the income tax. It’s vital for an adequate tax system. It’s the largest share of taxes in OK. Close to 800M lost in FY2010 because of tax cuts over the years. Over time, no other tax grows as robustly as the income tax. So either you see a decrease in revenue or you have to increase the rates of other taxes.
Cutting the income tax is not the right way to grow the economy or attract investment. There is little evidence companies use that as factor. Infrastructure, educated workforce are much more important. There’s a zero sum game here. Cutting income tax means less money for government services.
Suggestions: 1. Limit tax incentives 2. Limit itemized income tax deductions 3. Strengthen the sales tax (online sales, tax on services) 4. Allow higher tax rates on commercial property 5. Provide broad-based income tax cuts (increase personal exemption, stretch tax brackets)
Carnuccio: if we agree that not every dollar is spent correctly now, that’s something that needs to be addressed. Blatt: I think that’s a loaded question. If we ask do we spend enough on child abuse prevention or teacher salaries or roads, that might lead to more of a discussion. Carnuccio: we come from side of taxpayer and govt exists to serve the taxpayer, not the other way around. It’s not a loaded question, it’s a serious question.
Related posts:
- Notes from the Tax Credit Task Force meeting 8-24-2011
- Notes from the Tax Credit Task Force meeting 8-10-2011
- Notes from the Tax Credit Task Force meeting September 7, 2011
- Notes from the Joint Committee on the Federal Health Care Law meeting 9-14-2011
- Notes from the House Floor Session 4/25/2011
Posted by Oklahoma Watchdog on September 15, 2011. Filed under Oklahoma.
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