State Senate votes to end capital gains deduction

Lawmakers in the Oklahoma Senate voted Thursday to eliminate the tax deduction on capital gains.

The tax incentive cost the state $474 million over five years while just spurring an estimated $9 million in additional tax revenue. The incentive allows people deduct the tax that would otherwise be charged when someone profits from the sale of a property or an investment.

“As well-intentioned as it may have been, it hasn’t been good for our state,” said the bill’s author, state Sen. Dave Rader, R-Tulsa. “As far as credits, deductions and exemptions go, it hasn’t brought in jobs or economic expansion.”

The bill, Senate Bill 1086, passed by a vote of 30 to 10. It can now be heard in the House.

Oklahoma’s capital gains tax deduction was reviewed last year by the state’s Incentive Evaluation Commission. The firm hired by the commission to help analyze tax incentives recommended that it be eliminated because there was little evidence that it helped spur economic growth.

Pennsylvania-based PFM Group Consulting found that 86 percent of the tax break went to residents who make at least $200,000 annually.

Over the objection of the firm, the commission ultimately voted to tell lawmakers the incentive should remain on the books. The capital gains deduction is one of only a handful of recommendations that the commission rejected its experts’ opinion. Rader and 29 other members of the Senate, however, think it should go.

“I like incentives if they provide jobs and bring back more money than we give out. The aerospace, (historic rehabilitation) tax credit, Quality Jobs, those are all shown to give back more than we give out,” Rader said.

He said the bill might face a tougher path through the House, where members might not be so keen on ending the tax break that is supported by conservative and business lobbying groups.