OKLAHOMA CITY — Oklahoma Gov. Mary Fallin called for a modest cut to the state’s income tax rate in her State of the State address to legislators Monday, a year after they refused to embrace her plan to sharply reduce income taxes and eliminate popular deductions and exemptions.
In a departure from last year’s bold proposal, when she unveiled a major overhaul of the state’s tax code and a nearly 2 percentage point cut to the top rate, Fallin this year is proposing a one-time cut of 0.25 percent beginning in the 2014 tax year. Her proposal would drop the rate from 5.25 percent to 5 percent for most tax filers in Oklahoma and cost the state $125 million when fully implemented in 2015, according to the Oklahoma Tax Commission.
“This proposal gives us the flexibility we need to ensure that we are reducing taxes responsibly, without starving government,” Fallin said in her 50-minute address to House and Senate lawmakers. “This is not the last tax cut you will see from my administration. I am serious about lowering taxes, and I will work to get our taxes even lower and to help us be even more competitive so that our neighbors to the north and to the south won’t be taking jobs from Oklahoma.”
Based on estimates from Fallin’s office, the tax cut would result in a $40.7 million reduction in available general revenue for the upcoming fiscal year and about $106 million in general revenue next year. The additional $20 million in lost revenue projected by the Tax Commission comes from income tax revenue dedicated specifically to other funds. Oklahoma’s top income tax rate applies to individuals who earn more than $8,700 annually or married couples who earn more than $15,000.
Fallin’s proposal to slash the income tax drew immediate criticism from Democrats who maintain it will eliminate a critical source of revenue for state programs.
“The governor did a good job of delivering a speech that had a few bad ideas in it, not the least of which is the call for a reduction in our state income tax from 5.25 to 5 percent,” said Senate Democratic Leader Sean Burrage of Claremore. “I didn’t hear any way that we’re going to pay for that, and therefore it’s not revenue neutral.”
House Democratic Leader Scott Inman said it doesn’t make sense for Fallin to promote an income tax cut in the same State of the State speech in which she enumerated hundreds of millions of dollars in needs, including repairs to the State Capitol building and more mental health funding.
“She was long on ideas, short on details,” he said.
Fallin also called for further changes to the state’s pensions that would reduce the unfunded liability of the major systems, an overhaul of the workers’ compensation system and an immediate boost in funding for repairs to the Capitol and teacher benefits.
Fallin also released her executive budget, which is her recommendation for how lawmakers should divvy up the estimated $7 billion in revenue they are authorized to appropriate this year. The governor’s budget often serves as a starting point for negotiations with lawmakers on how the state revenue will be allocated. Although the final amount for how much lawmakers will have to spend for the fiscal year that begins July 1 won’t be determined until later this month, early projections are that they will have about $170 million more to spend this year than last year.
The governor wants lawmakers to approve $18.5 million in supplemental funding this year, including $10 million to begin repairs on the Capitol’s crumbling exterior facade and $8.5 million to help pay for health benefits for public school teachers and education employees.
“The Capitol is a symbol of our state, a place of business and a living museum dedicated to preserving Oklahoma’s history, its literature and its art work,” Fallin said. “And it’s not right for our visitors to come to the Capitol and see construction cones and barriers outside, to have crumbling facades from the top and a faulty sewer system that stinks.”
New House Speaker T.W. Shannon said Fallin “started the conversation” on some of the state’s pressing budget needs and that he thinks her request for additional funding this year for education and improvements to the Capitol will be well received by lawmakers.
“I don’t think we’re going to have much problem there,” said Shannon, R-Lawton. “Starting off with a $10 million cash approach, I think is a good step, and I think we need to continue in that direction.”
Fallin’s executive budget calls for increased funding for education of about $13.5 million and major boosts in spending for the state’s Medicaid and child welfare programs. Her proposal includes $40 million in funding next year for an increase in the number of Medicaid-eligible Oklahomans who are expected to enroll in the program and another $40 million to the Department of Human Services for improvements to the state’s child welfare system.
“For years the care for these children has been inadequate,” Fallin said.
Fallin devoted much of her remarks to issues of health care, criticizing the federal health care plan’s expansion of Medicaid, which she called “unaffordable for the country at a time when we are already experiencing a long-term spending crisis.”
Fallin gave support to a proposal to allow Oklahoma cities to enact tougher smoking bans in public places. Doing so would address “the state’s number one killer: tobacco,” Fallin said, and save taxpayer money by lowering health costs and lost productivity.
State law currently bans smoking in many public places and indoor workplaces but prohibits cities from adopting their own smoking bans.