OKLAHOMA CITY (AP) — A plan supported by the governor and legislative leaders to slash Oklahoma’s top income tax rate disintegrated in the House on Wednesday, leaving open the possibility that a tax cut may not be approved before the Legislature adjourns Friday.
House Speaker Kris Steele acknowledged there weren’t enough House Republicans willing to support the proposal after an analysis by the Oklahoma Tax Commission showed it would actually increase the tax liability for an estimated 24 percent of tax filers. The analysis was released a day after the plan was agreed to last week.
“Part of being a leader is recognizing when something won’t work,” said Steele, R-Shawnee. “We’ve come to the conclusion that the tax deal that we reached last week is not the best deal that we can obtain for hardworking Oklahomans. The House could not fully embrace that tax plan, because it would cause too many Oklahomans to see their tax liability increase.”
Instead, Steele and House leaders unveiled an entirely new proposal that would slash the state’s top income tax rate from 5.25 percent to 5 percent, beginning in 2014, if certain revenue growth triggers are met. The bill was approved in a House committee Wednesday afternoon.
The decision by House leaders to pull back from the original agreement clearly rankled both Senate leaders and the governor, who pressed the House to consider the proposal that all sides agreed upon last week. They contend that most of the tax filers who would see their liability increase currently receive more in rebates than they pay in state taxes.
“That is by no means a tax increase,” said Sen. Mike Mazzei, chairman of the Senate Finance Committee and a key tax negotiator for the Senate. Mazzei said once those low-income tax filers are removed from the analysis, closer to 84 percent of Oklahoma tax filers would either receive a tax cut or see no change in their tax liability.
Senate President Pro Tem Brian Bingman said the House proposal will not be considered in the Senate and that if the House refuses to take up the brokered proposal, there may not be a tax cut approved this year.
“It would be difficult to get a tax plan if they don’t hear that bill,” said Bingman, R-Sapulpa. “A deal is a deal, and that’s our position here in the Senate.”
A spokesman for Gov. Mary Fallin said she has not endorsed the House plan and is calling on House leaders to put the original proposal up for a vote.
“At this point, she just wants them to vote on and pass the plan that we’ve all agreed on,” said spokesman Alex Weintz.
Steele said the original proposal won’t be heard on the House floor.
“This issue is now at the Senate’s doorstep,” he said in a statement. “It’s up to the Senate to decide whether a tax cut passes this year. If the Senate supports lowering taxes, they’ll support our new bill so we can all send it to the governor.”
If lawmakers don’t pass a state budget before 5 p.m. Friday, they would be forced to return in a special session. The Senate has already passed a $6.8 billion general appropriations bill to fund state government and sent it to the House for consideration.
“If the House cannot fulfill its promise to pass the tax cut bill we all agreed upon, they must do the right thing by Oklahomans and pass the budget,” Bingman said.
Weintz said the governor had not made a decision on whether to call a special session to have lawmakers address the tax proposal.
“However, it is clear that the House and Senate have reached a stalemate regarding tax cuts,” Weintz said. “The governor is still doing everything she can to deliver a meaningful tax cut this year and will announce a decision regarding the possibility of a special session by the end of this week.”
Steele said House Republicans balked at the plan announced last week after learning it would actually increase the tax liability for more than 400,000 Oklahoma tax filers.
That proposal, which was announced at a joint press conference with Fallin and House and Senate leaders, called for slashing the top rate from 5.25 percent to 4.8 percent in 2013. It also would have imposed a one-time tax trigger to further cut the rate to 4.5 percent in 2015, if certain revenue growth thresholds were met.
The increase in tax liability resulted from the elimination of two personal deductions enjoyed by thousands of taxpayers, including the personal exemption of $1,000 per dependent for those individuals who earn more than $35,000 or for couples who earn more than $70,000. The original agreement also would have repealed nearly three dozen tax breaks for businesses and industries that cost the state about $4.6 million annually.
The new House proposal would put in place a series of revenue growth triggers to slash the top rate by one-quarter of 1 percent, beginning in 2014, each time the triggers are met. The triggers would be activated if there was a 5 percent increase in revenue collections from five separate sources: motor vehicle taxes, use taxes, sales taxes, income taxes, and corporate taxes that are apportioned to the general fund.
But Senate leaders have consistently opposed revenue triggers for future tax cuts.
“We don’t think that’s a responsible approach to deal with uncertain and changing economic conditions over time, so that particular concept, that particular approach of theirs, will not even get a hearing in a conference committee here in the Senate,” said Sen. Mike Mazzei, chairman of the Senate Finance Committee and a key Senate negotiator on the tax proposal.
A preliminary analysis of the new House proposal by the Tax Commission shows it would cost about $120 million if the first trigger were reached. The second trigger would cost $152.3 million, and a third would be $172.9 million.
The brokered proposal would have cost $32.7 million in the upcoming fiscal year and $102 million in fiscal year 2014.