“Significant” income tax cut still within reach, as Fallin repeats her advocacy

While some analysts and most Democratic voices assert major income tax reduction is fading from the front-burner at the state Capitol, three key Republicans contend they are set to deliver “significant” tax reduction this year. Of course, “significant” might be in the eye of the beholder. 

As the Legislature crosses the half-way point of the 2012 session, the trio of leaders have not squelched the idea of major cuts, and/or beginning a phase out of the state income tax. 

Governor Mary Mary Fallin, in a brief exchange with two reporters (including CapitolBeatOK) repeated her strongest talking points from recent months, saying it was time for the Legislature to step up and lead on the issue. The range of potential cuts appears to lie somewhere between a quarter of a percent (the Senate) and half-a-percent (the House) to one percent or more (the governor). 

Fallin in early February advocated the largest tax cut in Oklahoma history, including a slow motion phase out of the income tax. 

Legislative vehicles dubbed “live rounds” at this point range from a half-percent cut to as much as three percent lopped off the current 5.25 percent top rate, but the latter cut is predicated on achieving tax credit reforms – ideas that have faced powerful opposition from business interests and others.

Gov. Fallin told CapitolBeatOK she is meeting twice a week with legislative leaders, to discuss all issues, including tax reduction. She has been pressing for tax cut action sooner rather than later, so that other policy matters can be dealt with in the closing weeks of the session.

In his weekly exchange with Capitol reporters last Thursday (March 29), Senate President Pro Temp Brian Bingman promised taxes will be cut “fairly significantly” before the session ends. The Sapulpa Republican reflected, “It helps if the governor is pushing us” to get things resolved, so that legislators can leave before the scheduled late May adjournment. He said, “We are making progress.”

Bingman declined to name a firm percentage or dollar figure: “I don’t think I can yet give a good number. I am anxious to talk with her and Speaker and others about what’s within reach.” Like others among the “deciders” at the Capitol, he complimented the work of state Rep. David Dank, who led the lengthy task force investigation of tax credits and business incentives, recommending some for repeal, others for reform, and an end to transferability of credits.  

Bingman also mentioned the work of his colleague, Mike Mazzei of Tulsa, adding, “We can’t continue just looking, now we have to make some decisions.”

In response to a question from CapitolBeatOK, Bingman said, “Any tax cut is substantial in my view.” While clearly sympathetic to agencies that have faced budget reductions in general appropriations in the last three three years, he said budget restraint is needed even when tax revenue growth is good. 

Continuing his response to the spending issue, Bingman said, “I am always open to see if there are inefficiencies. In my mind regardless of the revenue picture we are starting off the budgeting with a flat budget. There may be some tweaks where some agencies may take a little more in cuts.”

House Speaker Kris Steele offered similar observations, but named a higher target for potential tax reduction. Echoing Bingman, he told one reporter, “I am not prepared to give you a number today,” but went on to comment the Legislature should always consider “any and all consequences.” He believes a half percent reduction in the unpopular income tax levy is still possible. 

While not as pessimistic as Rep. Dank about a major tax cut in 2012, the Shawnee Republican said, “We are still focused on the tax code. We’ve learned that behind every tax credit there is a constituency.” He continued, “There have been some sobering votes and discussions.” Until the House working group he named finishes its work and the Republican caucus focuses specifically on possible cuts in its meetings, reflected, “I’m not sure that [Dank’s] pessimism is right.” He added, “I do want to stress that the final amount of a tax cut will in part be tied to reforms in the tax credits.” He also stressed his support for Dank’s work and the value of the Oklahoma City Republican’s analysis. 

Reporters pressed Steele on how a tax cut might be presented. He commented, “Whether it’s in a comprehensive package or not – it could be in pieces — our caucus wants to reduce income taxes and I believe that is going to happen.” He also said he is advocating for “a responsible plan. As the economy grows there is room to reduce our income tax rate without hurting core services.”

Steele added, “it doesn’t necessarily have to be ‘revenue neutral.’” He explained “one of the considerations is to assume a dynamic [economic] response to whatever we do.”

In discussion of a separate issue – the failure of major ethics reforms in the House, despite his personal support — Steele offered a reflection that seems equally apt in the tax reduction context. He observed, “We talk about a lot of things out here, but some times things are not ‘real’ around here until we have to make a decision and vote on them.” 

From the other side of the aisle and the opposite end of the Capitol rotunda, state Sen. Sean Burrage of Claremore, minority leader in the upper chamber, declared last week that the “Pinnacle” reform plan for the Department of Human Services ought to rule out consideration of any tax reductions.

Burrage contended, “The plan to hire 200 new child welfare workers, recruit more foster parents and phase out shelters is extremely encouraging. I’m hopeful these initiatives will mark a real turning point in how Oklahoma deals with at-risk children and families.

“The reality is current funding levels for DHS are inadequate to implement these reforms. It will cost tens of millions of additional dollars. Yet even as this plan is being made public, there’s still a huge push to approve another income tax cut. I am concerned that it will be virtually impossible to do both. For the sake of the children of this state, it is time to get our priorities straight.”

Perhaps the most upbeat assessment of chances for tax reduction in recent days came from Gov. Fallin herself. In a discussion with two journalists, including this writer, she stuck to her rhetorical guns. 

Disclosing she is meeting with Steele and Bingman every Tuesday and Thursday, she noted that the most aggressive tax reform mesures “are still alive. We’re going to be looking at how much can we afford.”

She contends that tax credit reform and rate simplification are key parts of her agenda. She restated the core of her view: “Taxpayers should be able to keep, the people of Oklahoma should be able to keep, more of their hard-earned money.” Fallin wants to make the state more competitive economically, and notes that serious tax reduction plans are under debate in neighboring states, particularly Kansas and Missouri. In sum, “The tax cut needs to be significant and real.”

When a reporter asked if the “writing is on the wall” for demise of major tax cuts, Fallin countered gently, saying the state must become more “family friendly and business friendly.” She believes, “This is the year to do it. I’m open to other ways to do this but we can’t make progress if we leave in place all the carveouts and loopholes.”

She asserted that, “In the end, this falls on the Legislature’s hands. They have to have the guts to step forward.” While agreeing there are “many special interest groups” opposed to tax cuts and the phase out idea, “we can achieve lower taxes. Our focus on government efficiency has already created savings.”

In response to a direct question as to whether or not a reduction as high as one percent or more remains within reach, Fallin answered “yes.” Still, she added, “All plans are on the table. I hope the Legislature will stand and do what’s right.”

Should Fallin and legislative leaders decide to press for budget trimming in combination with continued new efficiencies and tax credit reforms, a list of $853 million in potential reductions (totaling $2 billion over three years) has been advanced by the state House advocates of the most aggressive of the income tax phase out plans.

As debate and deliberation continues, Thursday (April 5) will bring dueling seminars by the state’s two leading policy think tanks, one deemed conservative or market-oriented, the other liberal or “progressive.” 

At noon, the Oklahoma Council of Public Affairs (OCPA) will host “The Race to Tax Freedom Day” at the state Capitol (Room 104) from Noon to 1:30 p.m. Featured will be presentations on the status of tx reduction efforts in Kansas and Missouri. That will be followed (around 1 p.m.) by a joint announcement from OCPA and the Tax Foundation concerning this year’s tax freedom day. 

Tax Freedom Day is the date, each year, when the Tax Foundation estimates Americans have worked long enough to pay their taxes for the entire year. The data is also calculated for individual states. After 90 minutes or so at the seat of state government, many participants will travel to OCPA’s offices at 13th and Lincoln (a few blocks south of the Capitol) for a luncheon and roundtable discussion.

OCPA’s analysis supports free markets, limited government and entrepreneurial capitalism. The group has been a leading advocate for income tax reductions, including a gradual phase out of the unpopular levy over a decade. 

At 1 p.m., Oklahoma Policy Institute will host a two-hour session expected to include critical analysis of the study commissioned last year by OCPA in cooperation with, Arduin, Laffer & Moore Econometrics (ALME), the econometric firm run by Dr. Arthur Laffer. 

The OK Policy event, slated for the Oklahoma History Center (800 Nazih Zuhdi Dr., northeast of the state Capitol), will also include presentations, organizers say, of “ what the implications of doing away with the income tax could be on state public finances, economic development, and the overall economy of the state.” 

OK Policy’s mission statement asserts the group “promotes adequate, fair, and fiscally responsible funding of public services and expanded opportunity for all Oklahomans by providing timely and credible information, analysis, and ideas.”