Tax forgiveness” is the first step, the real tax reform is far more than proposing tax forgiveness. For example, it may allow for an expansion of the earned income tax credit, so that poor households with children pay at the same effective marginal rate as the wealthiest households. It may propose a reduction in the highest marginal rates to ensure the poor still have tax advantages, and allow for targeted deductions and credits to ensure the bill does not raise taxes on low-income households.
If you’re an extremely rich, corporation that earns $10 million a year, you probably have some tax problems. The IRS is taxing your income and capital gains at over 50%. The problem with current tax law is that, at the very top, you get a very low marginal rate on your income (35% or 10% under current law) but pay a full tax rate on your capital gains and dividends.
The Senate may offer a tax plan with these “rich” people in mind. If so, it would have to offer an effective marginal rate on capital gains and dividends in the 40’s, which is only a small rate hike. If this is done, it means that some people at the very top would pay lower marginal rates than the middle class. So it would not raise taxes on the wealthy.
The bill, which was crafted by the State Senate’s Revenue Committee, is the latest iteration in the state’s ongoing “tax wars” between government and property owners.
The bill would exempt most property owned by nonprofit entities from the state’s personal property tax in addition to allowing for the reduction of some personal property taxes paid by other entities.
The proposal is similar to legislation passed by the Senate earlier this year, which would exempt nonprofit and government entities, respectively, from the personal property tax on items in an exemption program the state initiated in 2011.
That bill passed the House and the Senate, but stalled in the House Revenue Committee. The tax panel added items to the bill that the revenue office said would not be effective or result in a net gain in revenue. It took until this spring for the bill to get through the panel and on the calendar for a floor vote.
Gov. Mary Fallin has voiced opposition to the bill, saying the proposal does not come close to covering the state’s budget hole.
“The General Assembly can’t pass a bill that doesn’t fund our budget, that doesn’t fund government operations,” Fallin said at a news conference in February.
Opponents argue the bill amounts to an attempt to undermine the state’s constitutional and statutory obligations to pay its bills, and will result in a net loss of revenue for the state.
As it stands now, the state’s personal property tax and exemptions already cover more than 75 percent of the cost of operating a government agency.
Opponents also argue the bill is another attack on the state’s Constitutional, property tax protection provisions and its equal protection clause that guarantee people are treated fairly when their property is taxed.
They fear that by exempting nonprofits and government entities from personal property taxes, some may experience tax breaks they can’t afford to buy.
“That’s not fair,” said Mike McCarty of Tulsa. “When you exempt your church property, but not the community around your church, you are essentially telling me I should not be taxed. I’m not.”
McCarty has sponsored legislation to reduce the exemption amount, but it has failed to move from the Appropriations Committee.
Critics also argue there are more effective ways to address the fiscal situation, such as cutting spending or raising taxes.
If you are interested in more details about how tax forgiveness would apply to your own case, call (888)489-4889 for a free consultation today.