Oklahoma to cut income taxes by closing "loopholes"

Reuters News
Posted: Feb 06, 2012 7:28 PM
Oklahoma to cut income taxes by closing "loopholes"

By By Steve Olafson

OKLAHOMA CITY, Okla (Reuters) - Oklahoma's pro-business governor announced a plan on Monday to dramatically cut state income tax rates and eventually do away with the tax altogether, and said the state would pay for the cuts by closing "loopholes."

Speaking to both houses of the Legislature in her annual "state of the state" speech, Republican Mary Fallin called her tax cut plan "a game changer" that will give Oklahoma the lowest state income tax rate in the region except for Texas, which has no state income tax.

Fallin's proposal would simplify Oklahoma's tax structure, reducing the number of tax brackets from seven to three, she said.

Oklahoma's state income rate now ranges from a low 0.50 to 5.25 percent depending on income levels. Under her proposal, the high end beginning in 2013 would be 3.5 percent and the low would be 2.25 percent.

The first year of the tax cuts would begin next year and mean that a married couple earning $40,000 would pay 37 percent less in state taxes, Fallin said. Couples making less than $30,000 would pay no state income taxes.

To make up the revenue loss, estimated to be about $350 million, Fallin said the state will eliminate unspecified tax credit "loopholes", eliminate government waste and capitalize on the economic growth that will be spurred by tax reform.

Democrats criticized the plan, saying that eliminating tax credits would result in a higher tax bill for senior citizens and for families of four with earnings in the $40,000 to $50,000 range.

But even Democrats conceded that they do not have the numbers in the legislature to derail the plan as Republicans outnumber them by a better than a 2-to-1 margin.

"I think the train has left the station on this -- unless the people speak up,", House Democratic leader Scott Inman said.

Despite the loss in revenue that would result from the governor's proposed tax cut, she called for increased spending to hire more highway patrolmen, repair 706 bridges, fund teacher health care, improve the state medical examiner's office and repair the State Capitol building.

(Editing by Greg McCune)