Polar opposites
The income tax plan in Gov. Mary Fallin’s State of the State address has drawn opposite reactions from the state’s two leading public policy think tanks. Michael Carnuccio, president of the Oklahoma Council of Public Affairs, praised Fallin’s boldness. David Blatt, director of the Oklahoma Policy Institute, said the proposal “would bust a huge and permanent hole in the budget.” The details of the plan must still be worked out, and one think tank leader is optimistic as the other urges caution. “We can clearly see that when the dust settles, Oklahomans will keep more of their hard earned money next year,” said Carnuccio. Blatt wants the governor to get more input on the tax policies so they’ll be “fair to all Oklahomans and adequate to our state’s responsibilities.” We’re hopeful about tax reform this session and encourage the Legislature to take the next steps with a combination of courage and wisdom.
Oklahoma Gov. Mary Fallin delivers her State of the State address on the floor of the Oklahoma House in Oklahoma City, Monday, Feb. 6, 2012. (AP Photo/Garett Fisbeck)
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If you have not read the new legislation contained in HB 1587 and SB 3038, which attempts to do away with the Oklahoma state income tax, you need to look into this immediately and communicate to all retirees how adverse this legislation is to, not only Federal retirees, but every retiree in the state of Oklahoma as well.
First this new Oklahoma legislation is based on the “Laffer” plan. The “Laffer” plan is intended to work as follows:
The first (3%) reduction in the income tax rate is paid for by cuts in nonessential spending, along with the elimination of most personal tax credits, exemptions, deductions and exclusions. Further reductions in the rate are paid for by natural revenue growth and dynamic economic growth that would occur as a result of the initial reduction. It would not be necessary to cut core services or increase any other tax rates, including property and sales tax.
As written, HB 1587 will eliminate the following deductions and exclusions at the state level:
1. The deduction for all personal exemptions
2. The standard/itemized deduction based on the Federal Tax Return
3. The exclusion for the portion of social security that is taxable at the Federal level
4. The exclusion for all federal retirement pensions, both CSRS and FERS
5. The exclusion for all State retirement pensions, including those for state employees, teachers, firefighters, police and other law enforcement and anyone else covered by a state pension
6. The 75% exclusion for military retirees
7. The limited exclusion, up to 10,000 for all other retirees regardless of the source of the retirement.
I have read HB 1587 and after you read it, you will agree, as it is currently written, this is the most significant and serious assault on senior citizen retirement income in the State of Oklahoma, ever. If seniors don’t start mobilizing its rank and file and work with other senior citizen and retirement associations early on it will be too late to get this legislation changed.
The Oklahoma legislature cannot reduce 1/3 of its budget revenue coming from state income taxes without making some radical changes. The legislation contained in both the house and senate versions of the bill reduces the state income tax rate by 3 %, from 5.25% to 2.25%, starting 1-1-2013 and it decreases the rate of tax a quarter point ( .25%) per year until the state income tax is eliminated in or about 2022.
In the interim, and to make up for the revenue lost due to the reduced tax rates, the legislation eliminates all credits, deductions and exclusions. I.E. All Oklahoma retirees, including Federal retirees, will be effectively taxed on the amount of their Federal AGI for a 10 year period. Most state, federal and military retirees, including teachers, firefighters,andlaw enforcement now have no state tax liability for retirement benefits and federal taxable social security income. The result of this legislation will cause the immediate taxation of all retirement income including taxable social security starting 1-1-2013 for all retirees, including state,federal and military retirees. This is simply unbelievable and cannot be allowed to pass into law without a fight.
The planned quarter point reduction in tax rates is to be conditioned on a 5% revenue growth in state revenues. If the 5% trigger is not met there will be no change in the state income rate and will further extend the targeted phase out date of the state.
I believe this matter is so serious as to warrant immediate involvement by all senior citizens. The public talking points of state officials, regarding this legislation, are conveniently omitting the legislation will eliminate tax benefits currently extended to state and federal retirees and pensioners who receive taxable pensions, annuities and social security payments and that these benefits will be taxable under the proposed legislation.
This legislation is seriously adverse to the interest of all senior citizens and everyone should immediately contact their state representative(s)and the governors office and express their concern about these proposed changes and these changes will not be tolerated.