Senate Republicans threw secret talks to lower the state's personal income tax rate in disarray Tuesday by announcing their own plan in a hastily called news conference that caught Republican House leaders and the GOP governor off guard.
The Senate plan calls for reducing the top personal income rate of 5.25 percent a half percent over the next two years. It would lower it to 5 percent next year and 4.75 percent in 2014.
“We're here today to quash any rumors floating around out there about the Oklahoma state Senate not supporting income tax cuts,” said Senate President Pro Tem Brian Bingman, R-Sapulpa, who was flanked by Senate Republicans.
Sen. Mike Mazzei, R-Tulsa, incorporated the 191-page plan into Senate Bill 1230, which was submitted minutes later to a special Senate budget committee.
The Republican-dominated committee approved the plan, with Senate Democrats complaining they had less than 20 minutes to read it before being asked to consider it.
“Obviously here we've got a failure to communicate and negotiate in this building,” said Senate Minority Leader Sean Burrage, D-Claremore. “This is not a deal that has been negotiated between the House, the Senate and the governor. But rather it seems maybe it's a line in the sand that's being drawn by the Senate Republicans. In my opinion at this point, our time would be better spent trying to work out a deal.”
Mazzei said the GOP Senate plan was more responsible because the income tax cuts would be paid for by the credits and
“Our program does not rely on any budget savings or any budget intricacies to come up with a tax cut,” he said. “The members here have been very consistent throughout this legislative session that we not create tax cuts through budget gimmicks that leave holes for the future.”
House Speaker Kris Steele, R-Shawnee, called the Senate Republicans' move a negotiation tactic.
“We're going to continue working in good faith with the Senate and governor, as we have from the beginning,” Steele said.
Rep. Earl Sears, chairman of the House Appropriations and Budget Committee, said it's possible he will put the proposal favored by House Republicans into a bill that will be filed later this week. The House GOP plan would cut the personal income tax rate to 4.95 percent next year; Sears, R-Bartlesville, said he wouldn't discuss further details of the proposal because negotiations were still under way.
Sears said talks between the Senate and the governor's office had not been contentious about reducing the personal income tax, which brings in about 30 percent of the money legislators appropriate.
“There's no question we have had different points of view,” he said.
Preston Doerflinger, who serves as secretary of finance and revenue on Gov.
“There are positive things contained both in the House and Senate plans and now the governor can work to bring these two bodies together to reach compromise to again achieve a meaningful tax cut for the citizens of Oklahoma,” he said.
Fallin has backed off from her original request of cutting the top income rate by 1.75 percentage points to 3.5 percent next year and gradually eliminating it. She also proposed reducing the number of brackets in the personal income tax code from seven to three, and called for cutting the income tax rate an additional quarter percentage point in any year in which the state sees 5 percent revenue growth.
Her proposal, which is in House Bill 3061, passed both the Senate and the House of Representatives and is in a conference committee.
If the House proposal is filed this week, that would mean lawmakers would have three bills reducing the income tax to consider with just a couple of days to act on them.
The Legislature is required to adjourn May 25; to give a bill enough time to get through the necessary legislative hoops, bills should be filed by Friday, but lawmakers could wait until early next week. Legislative leaders and the governor are still holding talks in secret on developing a $6.6 billion budget for the 2013 fiscal year, which begins July 1.
“We better get to work,” Doerflinger said.
“Time is running out,” Sears said.
SB 1230 is similar to a proposal Mazzei developed last year after several hearings in Tulsa and Oklahoma City on ways to change the tax code, which included reducing personal income tax rate. That proposal, SB 1623, passed the Senate but didn't get a hearing on the House floor.
SB 1230 would eliminate more than 30 tax credits available to businesses and several preferences available to individuals, such as the low-income property tax credit and the state earned-income tax credit. It also would eliminate the college savings program deduction and the political contribution deduction.
It would eliminate the personal exemption for single filers with a gross income of $35,000 or more and for joint filers with a gross income of $70,000 or more.
The grocery sales tax relief would be allowed, but it would no longer be refundable, and transferable credits would be made refundable, according to the measure.
The film rebate program would be cut from $5 million a year to $4 million a year, and the income level to receive a child care credit would be lowered from $100,000 to $50,000.
SB 1230 doesn't change exemptions for retirees and military personnel and keeps the standard and itemized deductions.
“By keeping those tax credits and breaks that work, modifying those that need adjustments and pitching those that don't benefit our economy, we've been able to create a tax cut plan that is fully paid for in fiscal year 2013 and 2014, protecting our core state services,” Mazzei said.
“I'm extremely proud of our members who have taken on the complex challenge of giving Oklahomans thoughtful and sustainable tax reform, ensuring our citizens are the top priority, not the special interests and their sacred cows,” he said.
A House proposal calling for reducing the top personal income tax rate by 3 percentage points to 2.25 percent stalled in the Legislature when House members failed to eliminate or reduce several economic tax credits that were a part of paying for the loss of the personal income tax revenue. Fallin's plan also called for some of those credits to be changed or cut.
Steele said the House in January outlined a plan to eliminate $300 million in tax credits as a way to pursue a significant income tax reduction, but bills calling for getting rid of the tax credits failed to advance in the House.
“The House has since proposed returning some of the state's net growth revenue to taxpayers instead of pursuing the Senate's plan to end credits that benefit seniors, children, child care, small businesses, people saving for college and others,” Steele said. “The House's conclusion has been that a comprehensive cost-benefit analysis of those credits needs to be conducted before eliminating them.”
Fallin said the state's economy is improving and lawmakers should use increased revenue earnings to pay for some of the income tax cuts.
“With collections through April of this year now $350 million higher than originally expected, it's clear that Oklahoma's economy is quickly rebounding from the national recession,” she said. “This puts lawmakers in a great position — not only can they avoid the kind of widespread budget cuts we've seen in recent years, they can do so while pursuing a significant reduction in the state income tax. As Oklahoma continues to get good news about our revenue forecast, I would encourage our lawmakers to put that money where it belongs — back in the pockets of our hardworking citizens.”