Republicans who clawed for years to get control of Oklahoma's statehouse are fighting among themselves over cutting the state's top personal income tax rate.
A key part of the battle is over whether a cut should take place next year or should be postponed for another year.
House Minority Leader Scott Inman, D-Del City, recalling last year's impasse over cutting the personal income tax, said the disagreement on when a cut to the top personal income tax rate of 5.25 percent would take effect could spell doom for getting tax-cutting legislation passed this year.
“The state Senate Republicans, while they were supportive of a tax cut, did not want to cut income taxes last year and if you look at their bill this year … they don't want to cut income taxes this year either,” Inman said. “With just a month and a half left and to be this far apart in how they cut it … that is significant. It really is in terms of whether they can get the sides to agree.
“Right now it doesn't look good for a tax cut,” he said.
Sen. Tom Ivester, D-Sayre, said, “We are seeing political infighting among Republicans in the Senate, Republicans in the House and the governor's office affect our ability to make good public policy. We're being forced to debate political talking points — whether a tax cut should be implemented before or after an important election year in 2014, whether the rate should be at or just below 5 percent … Drama about what is politically expedient is overtaking our ability to do what is best for Oklahoma.”
Republican legislative leaders, however, said they are determined to deliver an income-tax cut before the session is scheduled to end in late May.
“We have open dialogue with the governor and the speaker,” said Senate President Pro Tem Brian Bingman, R-Sapulpa. “We've still got two months in session.”
A mantra for decades
Cutting taxes has been a mantra the past 20 years for Republicans while their numbers gradually increased in the House of Representatives and the Senate. The GOP gained control of the House after the 2004 elections and the majority in the Senate after the 2008 elections. When Gov. Mary Fallin took office in January 2011, Republicans for the first time in Oklahoma history had a GOP governor while they controlled the House and Senate.
House Speaker T.W. Shannon and Fallin backed legislation this year calling for a cut in the personal income tax to take effect Jan. 1. House Bill 2032, authored by Shannon, R-Lawton, originally called for reducing the top rate to 5 percent; it would have been paid out of existing revenue.
A Senate committee last week scrapped their proposal and replaced it with language that delayed the cut from taking effect until Jan. 1, 2015. It also would reduce the top personal income tax rate from 5.25 percent to 4.95 percent, and end the practice of five popular economic tax credits from being sold to others who need to reduce their income tax liability to the state.
Democratic lawmakers oppose a cut of any kind, saying legislators need to first adequately fund key services such as education, roads, public safety and human services before cutting personal income taxes, the top revenue source for the state's coffers. Personal income taxes bring in about one-third of the state's legislatively appropriated budget. For this fiscal year, personal income taxes are estimated to bring in $2.1 billion of the $6.8 billion budget.
“This is simply not the year to cut the income tax,” Inman said. “We need to invest in our core functions of government.”
Senate Minority Leader Sean Burrage, D-Claremore, said the numbers behind rate decrease could be troubling.
“Senate Republican leadership says that the average Oklahoman could save $80 a year with this tax cut,” Burrage said. “That's just $1.50 per week. But, when you add it all up, it means millions of dollars that could be used to restore funding cuts to our local schools, give our teachers or our Highway Patrol a raise, fix our roads and bridges, and restore our state Capitol, which is literally crumbling around us as we debate these bills.”
Sen. Mike Mazzei, R-Tulsa, chairman of the Senate Finance Committee, inserted the new language in House Bill 2032 three days after a House budget subcommittee voted down his measure to reduce the personal income tax.
His measure, Senate Bill 585, would have reduced the state income tax to 4.75 percent; some of its cost would have been offset by eliminating some exemptions and tax credits with the rest coming out of existing revenue. It would have taken effect Jan. 1, 2015.
Shannon said a House budget subcommittee rejected Mazzei's bill because it would have raised taxes on some taxpayers.
‘Tax relief now'
Shannon said House Republicans favor a tax cut taking effect Jan. 1.
“We need to provide tax relief now, not delay it another year,” he said. “I know the Senate is committed to working together on this and I'm confident between the governor's office and Pro Tem Bingman we'll have a really comprehensive tax cut bill.”
Asked if the Senate would insist on a tax cut not taking effect until 2015, Bingman said, “We're trying to look at various ways to make sure we can pay for it and being responsible when we look at tax cuts.”
Proponents of a personal income tax cut fear the rejection of both bills this year could derail efforts to get a personal income tax cut for the second year in a row. Five bills were considered last year; lobbyists contested them to protect tax credits identified as targets for elimination.
The Senate in the last days of the session came up with an alternative plan, but it ran in trouble when it was determined some middle-class families would have to pay more in income taxes. The House came up with another plan that the Senate didn't like. The session ended with the Senate not taking up the House bill and the House not hearing the Senate plan.
Input from lobbyists?
If an agreement can be reached on when an income-tax cut should take effect, HB 2032 still faces being opposed by lobbyists working for companies affected by the legislation. It calls for eliminating the ability of those receiving economic credits for coal mining, wind power, rehabilitating historic buildings, energy-efficient construction and railroad modernization to sell them. Instead, they would be allowed to get a refund of 80 cents on the dollar on the tax credits they couldn't use.
When companies receive more credits than they owe in state taxes, they use the transferability feature, which allows them to sell their surplus credits to other corporations, usually insurance companies, or individuals, usually for about 80 cents on the dollar. The buyers use the credits to reduce their own tax bills.
“Any bill as it's currently fashioned may find an uphill battle with the lobbyists out here,” Inman said.