EDMOND — Thanks to a proposal going before the Oklahoma Legislature this spring, taxes on middle-class Oklahoma families could soon be going up.

Recently, a legislative task force on comprehensive tax reform proposed reducing the top Oklahoma personal income tax rate from 5.25 percent to 4.75 percent. In order to offset the lost revenue from the reduction in the top tax rates, though, the task force proposed the elimination of many deductions, exemptions and credits claimed by Oklahoma taxpayers.

On one hand this proposal resembles the optimal tax policy described in economics textbooks — a lower tax rate with a broader tax base is generally preferred to a higher rate with a smaller base. In this case, though, this general rule does not hold. In fact, there are two main reasons why this proposal is bad economic policy.

First, by eliminating the personal exemption and other common deductions claimed by middle-class Oklahoma families, most Oklahomans would see their taxes rise under this proposal. According to an analysis conducted by the nonpartisan Institute on Taxation and Economic Policy (and released by the Oklahoma Policy Institute), 55 percent of Oklahomans would see a tax increase, whereas only 31 percent would see a tax cut.

Furthermore, because the reduction in income tax rates provides the greatest benefit to the highest-earning Oklahomans, the highest-earning Oklahomans are the ones that would see a tax cut. However, because middle-class families would be harmed by the elimination of the personal exemption, and poor families would be harmed by the elimination of the earned income and sales tax relief credits, it is the poor and middle-class that would feel the pain.

The magnitude of that pain is quite shocking considering the conservative nature of the Oklahoma Legislature. According to the Oklahoma Policy Institute analysis a typical married Oklahoma couple with two children will see their taxes rise by a whopping $614 under this proposal. In short, for the many Oklahoma middle-class families living day-to-day, week-to-week, and paycheck-to-paycheck, this proposal would be disastrous.

Second, because the tax burden would shift to lower income levels, the proposal actually would raise the total amount of taxes paid by Oklahoma families thanks to the linkage between state and federal taxes. While the proposal is intended to raise the same amount of state tax revenue (although some will pay more), it actually will increase the amount of federal taxes Oklahomans pay. This is because those receiving the greatest benefit — the highest earning Oklahomans — are also the most likely to itemize deductions on their federal tax returns. With lower state taxes, these individuals have lower deductions, leading to higher federal taxes.

However, the poor and middle-class itemize deductions much less frequently, leaving their federal taxes unchanged. As a result, the total tax burden faced by Oklahoma families (total of local, state and federal taxes) will rise. The higher taxes will further impede state economic growth.

Thus, the task force proposal would shift the tax burden onto poor and middle-class Oklahoma families while simultaneously increasing the federal taxes Oklahomans pay. This hardly can be the type of tax reformthat middle-class Oklahoma families want. Let’s hope that once the impact of this proposal becomes more well-known, our leaders will muster the will to protect Oklahoma’s families.



MICKEY HEPNER is the dean of the College of Business Administration at the University of Central Oklahoma. Hepner serves on the Executive Committee of the Board of Directors for The Oklahoma Academy.