A new approach to taxation was the subject of a legislative study in the House Appropriations and Budget Subcommittee on Revenue and Taxation. Rep. Mark McCullough proposes taxing service transactions and eliminating corporate income tax while reducing personal income taxes.
McCullough claims a tax on service transactions would be a more reliable revenue stream for the state. His proposal would tax transactions on everything from oil changes to health care.
“This is not a tax increase proposal; this is a dollar for dollar swap that I am suggesting,” said McCullough. “We live in a service-based economy. The benefit is that services would be a much more reliable revenue stream for the state than corporate taxes or income taxes, which have proven to be unstable.”
McCullough points to testimony provided by Oklahoma Tax Commission Director Tony Mastin during the committee meeting on Wednesday. Mastin said two-thirds of Oklahoma corporations don’t even pay the tax because of exemptions and profit requirements in law, and that revenue from the tax has fluctuated from as much as $550 million some years to $150 million in other years. McCullough said that proves corporate taxes are not reliable.
“The corporate tax is a joke and any effort to repeal corporate tax credits is extremely difficult,” said McCullough. “We can’t win because the corporations send armies of lobbyists to the Capitol if you even suggest repealing a tax credit. So let’s beat them at their own game and just repeal the corporate tax altogether.”
McCullough said a service tax would be more fair and predictable.
“The idea is that everybody pays – no carve outs, no exemptions,” said McCullough. “Tax all services at a very low rate, across the board. Conservative economists say the key to increasing revenue and maximizing economic activity is a flatter rate, a broader base and fewer exemptions. This plan answers all of those requirements.”
McCullough’s proposal doesn’t eliminate individual income taxes, even though he also laments those same taxes are too reliant on the oil and gas industry. He would like to have individual income taxes set at a flat rate of three percent with no exemptions. He added that going to zero would be difficult.
“Look, we’re not Texas, and personal income tax is an important revenue stream for us in Oklahoma,” he said. “A flat three percent rate with no exemptions would still give us that revenue stream while also making us extremely competitive with other states.
This proposal to change the state tax system were the result of the work of the House Tax Policy Working Group. Members of the group are McCullough, Rep. Charles McCall, Rep. Tom Newell, Rep. David Derby, and Rep. Earl Sears.
McCullough would like to see the proposal put to a vote of the people.
This would do something that many have been complaining about for years. Tax free internet sales. It’s easy to buy oil from Amazon but harder for the internet to change it. By moving to a service, rather that product tax the internet becomes a nonstarter. While this would put additional burdens on the poor and middle class the advantages far out way the disadvantages.