Senate leaders Tuesday unveiled a revenue-neutral plan to slash the income tax by one-half of 1 percent over the next two years, a move that clearly caught officials from the House and governor’s office off guard.
Flanked by the GOP caucus at a hastily called news conference, Senate President Pro Tem Brian Bingman released details of the plan that would pay for the cuts by eliminating and modifying numerous tax breaks and exemptions. A nearly 200-page bill later was approved by a Senate committee.
“We’re here today to quash any rumors floating around out there about the Oklahoma state Senate not supporting income tax cuts,” said Bingman, R-Sapulpa. “We’re all for income tax reductions, but we’ve said all along that we want to make sure that we move forward in a responsible manner, and we think the plan we’ve worked on is very responsible.”
Closed-door discussions between the House, Senate and Gov. Mary Fallin’s office on how to reduce the state’s income tax have been heating up in recent days as lawmakers race toward a May 25 deadline for adjournment. While none of the three sides would acknowledge talks have broken down, the move by the Senate shows there is no agreement on how to reduce the income tax.
“It’s obvious that the Senate’s press conference wasn’t a policy statement as much as it was a negotiation tactic,” House Speaker Kris Steele said in a statement.
State Sen. Patrick Anderson, R-Enid, said Tuesday evening the Senate plan is particularly good because it is revenue neutral.
“We want to protect education, transportation budget, roads and bridges, and core government services,” he said. Calling the Senate plan a reasonable approach, he said there is no agreement yet with the House and the governor’s office.
The Senate plan would reduce the top income tax rate from 5.25 percent to 5 percent, beginning next year. It would further reduce the top rate to 4.75 percent in 2014. The Senate plan would offset the lost revenue by eliminating more than 30 tax preferences for businesses and industry, including credits for things like the manufacture of wind turbines, gas used in manufacturing and credits for the aerospace and computer industries. Also eliminated would be some individual tax deductions like the earned income tax credit and contributions to college savings plans.
“A very important note about this particular program is that it is fully paid for in fiscal year 13 and it is fully paid for in Fiscal Year 14,” said Sen. Mike Mazzei, the chairman of the Senate Finance Committee and a point person in the Senate on tax cuts. “Unlike the plan that has been offered up by the House of Representatives, which is not paid for, our program does not use any budget shaving or any budget intricacies to come up with a tax cut.”
Mazzei said the Senate proposal also does not include revenue growth triggers to further cut the income tax when revenue growth reaches a certain threshold.
While details of the House proposal have not been released, Steele confirmed Tuesday the House plan would reduce the top personal income tax rate next year to 4.95 percent. That proposal is expected to cost the state an estimated $140 million when fully implemented, money that House leaders suggest would come from continued growth in state revenues.
“Lowering the income tax rate through growth revenue is the same mechanism that’s been used to lower the income tax rate from 7 percent in 1998 to 5.25 percent today. It’s not a gimmick,” Steele said. “It’s a straightforward, simple way to lower taxes and reduce the size of government.”
But Mazzei suggested that slashing the tax rate without eliminating the tax credits to pay for it would leave a “gaping hole” in next year’s budget once the full effect of the tax cut is realized.
At the beginning of this year’s legislative session, the governor proposed an ambitious plan to slash the top rate from 5.25 percent to 3.5 percent, eliminate hundreds of exemptions and deductions, and continue to slash the income tax by implementing further cuts when state revenue reaches certain levels. Fallin has since acknowledged her plan won’t pass this year, but is continuing to push the Legislature for as deep a cut as possible without jeopardizing core government services.
Fallin’s Secretary of Finance Preston Doerflinger said the governor remains committed to a significant tax cut and downplayed any suggestion that negotiations have reached an impasse.
“I think now the governor can work to bring these two bodies together to reach a compromise and achieve a meaningful tax cut for the citizens of Oklahoma,” Doerflinger said.
The head of the Oklahoma Policy Institute, a Tulsa-based think-tank that supports funding for public services, commended Senate Republicans for agreeing to pay for tax cuts, but criticized the elimination of the earned-income tax credit and a change to a grocery sales tax credit that targets low-income Oklahomans.
“The plan eliminates the additional personal exemption for low-income seniors, and it ends the state earned income tax credit, a vital support to encourage work and investment while keeping families off welfare,” said Director David Blatt. “Especially troubling is that the Senate plan makes the sales tax relief credit nonrefundable, while at the same time, several special-interest tax credits become refundable.
“The coal, wind, and construction industries would receive money back on their tax returns, but not working families who continue to pay a significant part of their incomes in sales taxes on groceries.”
Staff Writer Robert Barron and The Associated Press contributed to this story.