Oklahoma lawmakers launched a task force Thursday whose goal is no less than to comprehensively reform the state’s tax code, a lofty effort that has met with mixed results in the past. However, given that one of the stated goals of both co-chairmen of the panel is eventual elimination of the state personal income tax, it may draw more attention than usual.

The income tax is the state’s top producer for the General Revenue Fund.

Co-chairman Sen. Mike Mazzei, R-Tulsa, recuperating from a health issue, attended the meeting by telephone, offering an opening statement that was read to members by Sen. Rick Brinkley, R-Owasso.

“This presents us with an exciting opportunity to develop a broad tax reform proposal, which can create a significant competitive advantage for the people of Oklahoma to grow more high paying jobs and to enjoy a higher standard of living,” Mazzei said in the statement. “If we do our task well, we can present a plan or plans to the legislature, which will raise the average income per person in Oklahoma and grow our population.”

He said that will in turn grow the state’s tax base, increasing funding for education, highways, public safety, health care and other priorities.

“In doing so we will have to confront some severe structural problems with our tax code,” Mazzei said, noting that Oklahoma’s tax system was built for a manufacturing and agriculture economy.

“In the 21^st Century, however, our economy is driven more by services, and over two-thirds of our economic output is driven by consumer spending,” the co-chairman said.

Mazzei said today’s best tax systems are broad based, with low rates that do not favor one activity over others.

“Our system, however, is riddled with tax subsidies, deductions for political contributions, credits for remodeling old buildings, exemptions for vitamins, and incentives for business activity, which would happen anyways,” he said.

Mazzei said the task force must act on the work of Rep. David Dank, R-Oklahoma City, the other co-chairman, who is looking into many of the numerous tax credits Oklahoma offers, and “have the courage to say ‘no’ to special interest groups and focus on what is best for the people of Oklahoma.”

Mazzei said the state cannot afford not to act.

“By my estimate, we misspend well over $500 million per year,” he said. “Our Oklahoma retailers are losing business to the online giants who aren’t collecting sales taxes. This probably costs our cities roughly $150 million per year.”

Mazzei encouraged the task force to recommend:

• A permanent solution to the taxation of intangible property that does not create another burden for small businesses. This keys off of one of the task force’s specific responsibilities, which is to recommend changes to the business activity tax, established as an in-lieu tax to avoid taxation of intangible business property, which Mazzei said was a circumstance stemming from a recent Oklahoma Supreme Court decision.
• A plan to eliminate millions of dollars in tax subsidies while reducing state income tax rates and broadening the tax base.
• Restructuring the tax code to do away with the state income tax.

Dank agreed that adding Oklahoma to the list of states without an income tax should be a goal.

“I think we need to look at a more consumption-based tax,” he said. “I think that’s something that’s going to come. I think we’re going to at least reduce the personal income tax virtually every year from now on out.”

If the tax cannot be eliminated altogether, Dank said, it should be reduced to around 3 percent or so. The state’s top rate is scheduled to drop to 5.25 percent, by operation of law, in 2012.

Dank was asked how he would suggest replacing the revenue that would be lost from doing away with the income tax.

“I think we’re going to have to think about a higher consumption tax, in terms of the sales tax, and other areas, and particularly getting rid of so many of the exemptions and the deductions that people have on their sales tax collections,” he said.

Dank wants to get rid of a lot of tax credits as well, both those for business and individual taxpayers and families, such as the earned income tax credit.

Dank said the EITC costs the state more than $30 million per year.

“We have a lot of exemptions and deductions that make absolutely no sense,” he said. “That’s what I’m going to ask this task force to take a look at… I think we have an obligation to look at all of them, and it’s going to make some tough decisions.”

Dank believes that taxation of Internet sales needs to be addressed at the federal level.

“I’m basically a brick-and-mortar type supporter,” he said. “I think if they’re in Oklahoma, if they’ve got their businesses here, if they’re employing our people, I think they shouldn’t be put at a disadvantage. So, something has to be done.”

Dank also favors taking a look at taxing some services, with exemptions for prescription drugs and other medical needs, among others, as well as exempting groceries from the sales tax.