, Muskogee, OK

December 23, 2012

Fallin, GOP leaders temper talk of deep tax cut

Associated Press

— OKLAHOMA CITY — Gov. Mary Fallin and leaders of Oklahoma's Republican-controlled Legislature say they remain committed to reducing the state's income tax, but all appear to be supporting a more cautious approach to tinkering with the source of about one-third of the money lawmakers appropriate each year.

Fallin last session proposed a bold initiative to slash Oklahoma's top income tax rate from 5.25 percent to 3.5 percent, reduce the number of income tax brackets from seven to three, and offset much of the lost revenue by eliminating various deductions and exemptions. But that proposal fell apart in the waning days of the session after lawmakers balked at getting rid of popular deductions and couldn't agree on how the cut would be implemented.

For the session that begins in February, Fallin said last week she still plans to push for a tax cut but acknowledged she will offer a less ambitious proposal.

"It goes back to the uncertainty in Washington, D.C.," Fallin said, citing the looming "fiscal cliff" and the potential impact of federal budget cuts on Oklahoma's economy. "We will be looking at further income tax reductions, but not to the extent that we were looking at last year just because of the uncertainty.

"I think we're looking at something that would be ... simpler to administer."

Senate President Pro Tem Brian Bingman, R-Sapulpa, has consistently maintained what he describes as a "responsible" approach to cutting taxes, especially given the uncertainty over federal funding in Washington, and said his top priority for the upcoming legislative session will be overhauling the state's workers' compensation system.

Incoming House Speaker T.W. Shannon, R-Lawton, said he believes slashing the state's income tax will remain a priority in that legislative chamber and that the national fiscal crisis "makes it even more important that we allow Oklahomans to keep more of their hard-earned tax dollars."

"It's certainly a high priority, probably one of the highest, but obviously it has to be balanced against a commitment to core government services," Shannon, R-Lawton, told The Associated Press last week. "We need to be thoughtful about it."

Although Democrats don't have the numbers in either the House or Senate to stop a tax cut proposal, Senate Democratic Leader Sean Burrage said Friday it's likely Democrats would be unwilling to support a bond issue if Republicans insist on cutting the income tax. The support of Democrats for a bond issue could be an important bargaining chip, because Republican leaders, including Fallin, have expressed an interest in bond issues for such things as needed repairs to the state Capitol, the completion of a Native American museum in Oklahoma City, and the construction of a popular culture museum in Tulsa. But many of the more conservative Republicans in the House and Senate are ideologically opposed to incurring debt to pay for state projects, which means GOP leaders might need Democratic votes to pass bond issues.

"It's just not prudent to talk about cutting revenue while you're increasing expenses. Oklahoma families don't run their households that way, and we shouldn't run the state that way," said Burrage, D-Claremore. "I can't be for going into debt for these bond issues while cutting our revenue without properly funding public education.

"I think it's positive news that they're trying to be more cautious, but overall I think tax cuts are a bad idea."

Shannon's newly appointed chairman of the House Appropriations Subcommittee on Revenue and Taxation, Rep. Earl Sears, said he plans to introduce a proposal that would systematically reduce the state's top income tax rate from by one-quarter of 1 percent from its current level of 5.25 percent to around 3 percent, if overall revenue growth meets certain levels to trigger the cut.

"What I want to do is try to get it down to 3 percent and then stop — let's see the lay of the land, what happens to our economy, how our economy responds to it, how state agencies respond to it," said Sears, R-Bartlesville, who said he expects as many as a dozen separate proposals to cut the income tax will be introduced next year. "I think what will win the day and what the conversation will be is a well thought out plan to get this income tax reduction."

Sears, who chaired the powerful House Appropriations Committee the last two years, said every one-quarter of 1 percent cut in the state income tax costs about $125 million annually. An early projection of state revenues shows lawmakers should have about $7 billion to spend on next year's budget, an increase of about $214 million over the current year's state budget.

"If you have major growth, there's no reason we can't have a conversation about giving some of that money back to the people who paid it in the first place, and you do that through an income tax reduction," Sears said.

Sears said he also expects to keep a close eye on neighboring Kansas, where lawmakers last session enacted huge cuts to that state's top income tax rate from 6.45 percent to 4.9 percent, beginning in 2013, and are already facing a projected $295 million shortfall for the upcoming fiscal year. The tax cut in Kansas also exempted certain business owners from individual income taxes and increased the standard income tax deduction for all filers.