Don't tax poor families' income

Legislators will have at least $300 million in new money at their disposal, thanks to the state's strong economy and skyrocketing oil and gas prices. Add to that the fact that Republicans, to whom the call to reduce taxes is an item of faith, have gained seats, and muscle, in the House and Senate and you can almost guarantee that tax issues will be on the front burner.

Gov. Frank Keating and his fellow Republicans in the Legislature will pursue at least two kinds of broad tax reduction -- cutting the income tax rate and removing the sales tax on groceries.

House Democrats, under newly elected Speaker Larry Adair, D-Stilwell, already have countered with their own program of targeted tax cuts, including two aimed at helping the working poor. Those are a three-day, back-to-school sales-tax holiday on clothing and some other items and an earned income tax credit for the poorest of income-tax payers.

Targeted tax cuts as a rule are better for Oklahoma than broad ones, simply because the state already has so many needs and is so strapped for money in crucial areas like education and highways that it cannot afford a sharp loss of revenue.

Specifically, the earned income tax credit is one proposal that ought to be given serious consideration by the Legislature.

There's no question that Oklahoma soaks its lower-income families for too much state income tax. That fact has been pointed out from both sides of the political spectrum.

Nearly a year ago Steven Dow, director of the Community Action Project of Tulsa County, cited figures from the Center on Budget and Policy Priorities, a liberal think tank, that showed that only 19 states, including Oklahoma, collect income tax from families below the poverty line and only 13 states collect income tax from poorer people than Oklahoma. Dow has been pushing for a tax credit for lower-income families since then.

Now, in the current issue of its bulletin Perspectives," the conservative Oklahoma Council of Public Affairs notes that Oklahoma collects more income taxes from poverty-level families than all but one of the surrounding states -- Arkansas -- and more from poverty-level individuals than any of our neighbors.

According to the OCPA, Oklahoma state income tax for a married family of four at the poverty level is $210, while Arkansas collects $287. OCPA, by the way, has not endorsed an earned income tax credit for the working poor; it supports lower taxes in general.

Senate Bill 35, by Sen. Bernest Cain, D-Oklahoma City, would let Oklahoma residents who qualify for the federal earned income tax credit claim a state income tax credit of 10 percent of the federal credit. If the credit exceeded the amount of state income tax otherwise imposed the excess amount would be refunded. Based on the number of Oklahoma families who file for the federal earned income tax credit, the tax credits in the Cain bill would cost the state about $44 million in the first year.

The credits would range from $35 for individuals or couples without children to $388 for families with two or more children. The average credit would be $160.

A tax credit of $160 -- or even $388 -- a year might not sound like much. But for families living below or just above the poverty level -- there are 250,000-300,000 of them in Oklahoma -- it could be what it takes to repair a car so that a wage earner could continue to get to work, or heat a house in the cold months.

If $44 million is too big a revenue bite, the credit could be phased in or pegged at something less than 10 percent.

The federal earned income tax credit has helped poor parents get off welfare and into jobs. A state tax credit would do the same. It will provide direct relief to the working poor in a simple and efficient fashion.

It will make the state's overall tax struc ture fairer. Poor families won't have to pay income tax but they will continue to contribute their share, through sales, excise and property taxes and highway tolls.

Twenty-one states and the District of Columbia do not tax the incomes of the working poor; 14 of those have enacted state earned income tax credits. Oklahoma ought to join those states and adopt its own earned income tax credit for poor families. David Averill is an associate editor for the Tulsa World.