Gov. Fallin, Democrats Budget Talks Yields Plan

From The McCarville Report

Multiple sources close to the recent budget negotiations have confirmed that Governor Fallin and House Democrats are nearing agreement on a billion-dollar revenue bargain. The McCarville Report received a document with the secret details of their back-room budget talks.

After the Oklahoma Supreme Court’s decision to strike down the tobacco “fee” as an unconstitutional tax, Fallin and House Minority Leader Scott Inman said they would be negotiating personally in an effort to fill the budget gap.

House Democrats refused to vote for nearly all revenue-raising measures last session. Without support from their Caucus, the legislature cannot increase taxes because of a Constitutional provision that requires a three-fourths majority to pass such measures.

That was then. Now, sources claim the Governor and the House Minority Leader are close to agreement on a billion dollars in new revenue, mostly in the form of tax increases.

A document obtained by The McCarville Report outlines the tentative agreement, detailing a list of revenue measures and expenditures. The document was recently circulated among House and Senate budget leaders, House and Senate staff, and senior Fallin Administration officials. The authenticity of the document has been verified by sources close to the discussions.

At the top of the list under the heading “Revenues” is two versions of a tobacco tax increase. One version listed is an increase of $1 per pack, which the document estimates would generate $171 million annually. The other version is a $1.50 per pack increase, estimated to generate $257 million annually. (Note: the tobacco “fee” that was recently struck down was said to be worth $257 million in annual revenue to the state.)

Next is a tax on gasoline. The document estimates a 6-cent tax on motor fuels would bring in $170,000,000 in annual revenue.

Perhaps most surprising is the third item on the list: an income tax increase on middle class and up earners. Minority Leader Scott Inman has insisted recently that past income tax cuts be repealed. It appears this is an area where his position was agreed to by the Governor.

The document lists two options for the income tax increase. One option listed is a 5.5% rate for individuals earning $80,000 and up, and households earning $160,000 and up. The other option listed is a 6% rate for individuals earning $200,000 per year, and households earning $400,000 per year.

Each of the listed options for an income tax increase have nearly identical revenue estimates. The 5.5% rate is estimated to generate $99 million in annual revenue, while the 6% rate is estimated to bring in $94 million per year.

The largest apparent tax increase on the list is an alcohol tax estimated to generate $291 million in annual revenue.

Other measures include a “Wind Sales Tax” estimated to generate $20 million per year; a “Cable Sales Tax” estimated to generate $65 million per year; an “Itemized Deduction Cap” estimated to generate $100 million per year; a “Biennial Vehicle Registration” estimated to generate $61 million in “one-time revenue”.

Not listed on the budget document but said to be part of any deal between Fallin and Inman is an increase in the gross production tax.

Sources with knowledge of their discussions say the amount of any increase remains under negotiation.

In total, the tax and revenue increases are estimated to bring in over $1 billion in “Maximum New Revenue”.

Tax and revenue increases aren’t the only focus of the budget document. It appears Fallin and Inman also have discussed how to spend some of the money their potential deal would generate.

For his part, Inman is said to have advocated for an elimination of the state sales tax on groceries. Sources with knowledge of his thinking say Inman believes it will be an accomplishment he can tout in his campaign for governor.

The budget document lists “Grocery Sales Tax Exemption” under a heading of “Expenditures,” at an annual cost of $261 million.

Also listed under the “Expenditures” heading is a teacher pay raise of $1,000. The document indicates it would go in to effect in January of 2018, with an annual cost of $44 million.

The only other expenditure listed is “Cigarette Fee Revenue Replacement.” The annual amount is $257 million, which is the same amount of revenue the state lost when the Supreme Court struck down the tobacco “fee.”

The document estimates “Maximum Expenditures” of approximately $560 million, with net additional revenue of over $500 million annually.

The McCarville Report will continue to follow this story closely and update readers with any additional details or reaction from public officials.