Oklahoma Senate approves plan to reduce income tax

OKLAHOMA CITY (AP) -- A Republican-backed plan to reduce the state's top personal income tax rate by one-half of 1 percent and offset most of the lost revenue by eliminating or changing dozens of exemptions in the tax code cleared the Oklahoma Senate on Monday.

The Senate voted 33-13, mostly along party lines, for the bill sponsored by Sen. Mike Mazzei, R-Tulsa. The measure now heads to the House for consideration.

The bill would reduce Oklahoma's top personal income tax rate from 5.25 percent to 4.75 percent, beginning Jan. 1, 2015, and eliminate dozens of tax exemptions for businesses and individuals.

"Our goals are to lower the rate for income taxes for all our hardworking Oklahomans and also to increase economic activity and job growth and to also responsibly fund core services like education," Mazzei said.

The proposal would reduce state revenue collections by about $43.5 million in fiscal year 2015 and $108.7 million when fully implemented in fiscal year 2016, according to a fiscal analysis by the Oklahoma Tax Commission.

The bill would eliminate more than two dozen tax deductions taken by businesses and industry, including credits for the sale of national landmarks, employer-provided child care, hepatitis immunizations for employees, and electric motor vehicle manufacturers.

The measure also modifies or eliminates several individual taxpayer deductions, including a child-care tax credit, which will be limited to those with incomes under $50,000 and the personal exemption, which would be restricted to taxpayers with lower incomes and larger families. The personal exemption restriction would no longer be allowed for any taxpayer who can claim less than four personal exemptions, and for single individuals who earn less than $35,000, a change that is expected to save the state nearly $440 million.

The Senate tax cut plan is markedly different than those being proposed by Gov. Mary Fallin and Republicans in the House. The governor's proposal, mirrored in House bills sponsored by House Speaker T.W. Shannon and House Appropriations Committee Chairman Rep. Scott Martin, would slash the top rate from 5.25 percent to 5 percent, beginning in 2014, without any offsets in revenue. That proposal would cost the state about $120 million when fully implemented.

David Blatt, director of the Tulsa-based think-tank Oklahoma Policy Institute, which advocates for funding for state programs that serve low-income Oklahomans, said several components of the Senate Republican plan are "deserving of praise."

Specifically, Blatt said that by deferring tax cuts until 2015, additional revenue would be made available for legislators to fund state agencies, and he praised Mazzei for keeping in place tax deductions for low and moderate-income Oklahomans.

"By curtailing various tax breaks as part of their plan, the Senate Republicans are pursuing a fiscally responsible approach that acknowledges the need to maintain our revenue base and allow for adequate funding of public services," Blatt wrote in an analysis of the Senate tax proposal.