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Republicans seek to abolish state income taxes

- Associated Press - Monday, January 30, 2012

OKLAHOMA CITY — A year after Republicans swept into office across the country, many have trained their sights on what has long been a fiscal conservative's dream: the steep reduction or even outright elimination of state income taxes.

The idea has circulated among academics and think-tank researchers for years. But it's moving quietly into mainstream political discourse, despite the fact that such sweeping changes would almost certainly mean a total rewiring of tax systems at a time when most states are still struggling in the aftermath of the recession.

"I think there's going to be more action that way," especially as Republican governors release their budget plans, said Kim Rueben, an expert on state taxation at the Brookings Urban Tax Policy Center.

Last year, GOP lawmakers in many states quickly went to work on a new conservative agenda: restricting abortion, cracking down on illegal immigration, expanding gun rights and taking aim at public-employee unions.

Emboldened by that success, the party has launched income-tax efforts in Idaho, Kansas, Maine, Missouri, Ohio, Oklahoma and South Carolina. But it's not clear how all those states would make up for the lost revenue, and Ms. Rueben said she's not aware of any state in modern history that has eliminated an income tax.

Nine states already get by without an income tax, mostly by tapping other sources of revenue. Nevada and Florida rely on sales taxes that target the tourism industry. Alaska has taxes on natural resources, and Texas imposes substantial property taxes. The other five states are New Hampshire, South Dakota, Tennessee, Washington and Wyoming.

But in the rest of the country, income taxes pay for bedrock government services, including roads, bridges, schools and prison systems.

In Oklahoma, Republican Gov. Mary Fallin says gradually cutting the top income-tax rate of 5.25 percent will make the state more attractive to businesses, help spur economic growth and ensure Oklahoma is competitive against neighboring states such as Texas. Although the personal income tax does not apply to corporate earnings, supporters say company executives and employees will prefer to live in a state that doesn't tax personal income.

South Carolina Gov. Nikki R. Haley is pushing this year to consolidate four personal income-tax brackets and to phase out corporate income taxes. She promises to seek more tax cuts in the future.

Missouri has a bill to reduce income taxes and offset the lost revenue by raising the cigarette tax.

And Maine's GOP-controlled Legislature voted last year to lower the income tax from 8.5 percent to 7.95 percent, taking 70,000 low-income citizens off the income-tax rolls.

As one way to compensate for the lost revenue, Miss Fallin and others have suggested eliminating other kinds of tax breaks and incentives, specifically transferrable tax credits offered to certain businesses. But that would still fall woefully short in Oklahoma, where the income tax provides more than one-third of all state spending.

Still, 23 Republicans in the Oklahoma House have signed up as sponsors of a measure to abolish the income tax over the next decade without raising any other taxes.

"Our goal is to transform Oklahoma into the best place to do business, the best place to live, find a quality job, raise a family and retire in all of the United States. Not just better than average, but the very best," state Rep. Leslie Osborn said.

AP writers John Hanna, Seanna Adcox, David Lieb and Glenn Adams contributed to this report.

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