Fallin’s Plan to Tax Services Appears to be On the Ropes

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Gov. Mary Fallin’s plan to boost state revenues by charging sales taxes on health care visits, utilities and dozens of services already seems to be in peril.

Hours after Lt. Gov. Todd Lamb resigned his post in the governor’s Cabinet over the issue, legislative leaders in both parties cast doubts that Fallin’s plan to raise $934 million by broadening sales taxes would pass.

“We’ve been pretty frank and honest that our caucus has some real reservations about that path, and I think the House has some real reservations about that path,” said Senate President Pro Tem Mike Schulz, R-Altus. “I think it’s a good discussion for us to have, but I think it’s an extremely high hurdle for us to get over.”

The proposal – coupled with other tax increases and decreases – is the centerpiece of the governor’s plan to bridge the state’s $870 million budget shortfall and bump funding for corrections, health services and other agencies.

Citing his disagreement with the proposal and the “adverse harm” it would cause for Oklahomans, Lamb stepped down Thursday from his post as her small business advocate.

The announcement was the latest sign of the tough task of getting enough Republicans, as well as Democrats, to back the revenue-raising plan.

The House Appropriations and Budget Committee provided a preview of the challenge earlier in the week when it voted 17-10 to advance a bill that would add $258 million to state coffers by increasing the cigarette tax by $1.50 a pack.

The vote was enough to get the proposal out of committee. But its approval margin – just under 63 percent of the committee – wouldn’t be enough for passage in the full House and Senate, where a three-fourths supermajority is needed.

House Speaker Rep. Charles McCall, R-Atoka, said that the committee’s vote offered a grim outlook for other tax bills.

“A tax on tobacco is probably the easiest revenue-raising proposal that you can pass,” he said, noting that it didn’t clear the 75-percent total.

Supermajority Rule

Fallin’s two proposed tax increases – on cigarettes and fuel (increasing diesel taxes by 7 cents per gallon and gasoline by 10 cents per gallon) – would be subject to the constitutional mandate requiring that revenue-raising bills pass with a supermajority vote in both chambers.

Any revenue-raising measure must win 76 votes in the 101-member House and 36 votes in the 48-member Senate. (The 76-vote total is still needed even though there are now 99 House lawmakers following the resignations of two GOP members.)

Voters added that provision in 1992 by approving State Question 640.

Meanwhile, Fallin’s plans to eliminate the grocery tax and corporate income tax would just need simple majority votes. A 2014 Supreme Court decision clarified that revenue-decreasing bills don’t have to meet the three-fourths threshold.

After Fallin announced the proposal in her State of the State address, Finance Secretary Preston L. Doerflinger said he didn’t believe a three-fourths vote was needed to broaden sales taxes. Days later, he walked back that remark somewhat, saying the issue is up to “legal interpretation” and that “we’ll leave that to lawmakers to decide.”

Others have said the supermajority law would apply.

“To me, it’s pretty crystal clear – it would need the three-fourths votes,” said University of Oklahoma economics professor Alexander Holmes. “If they tried to get it through without that, I can guarantee you it would be challenged in court.”

Holmes was the secretary of finance and revenue during the late 1980s and early 1990s, when efforts to pass SQ 640 began. Holmes also led an unsuccessful effort to broaden the tax base during his tenure in Gov. Henry Bellmon’s administration.

Because of the many special interests that will lobby against expanding sales taxes, he said, it will be difficult for the governor to attract even a majority to adopt the measure. If three-fourths of legislators is required, Holmes puts Fallin’s chances at “zero percent.”

Schulz told reporters last week that, “philosophically speaking,” he doesn’t see expanding the sales tax base as a tax increase. But he said his interpretation of the constitution is that a supermajority vote will be required since it is a revenue-raising measure.

Political Scenarios

Republicans control 73 of the 99 House seats – just shy of a three-fourths majority. That means they would need at least three Democrats to support the plan even if all Republicans vote for it. And it appears extremely unlikely all Republicans will support the plan. Fourteen GOP lawmakers issued a joint statement Thursday evening supporting Lamb’s decision and pledging to oppose the sales tax expansion.

“I am excited to see our conservatives being willing to make the tough decisions instead of taking the easy way out in taxes,” said Rep. Kevin McDugle, R-Broken Arrow. “We have got to deal with the tax credits and the spending for unnecessary functions of our government.”

House Minority Leader Scott Inman, D-Del City, has indicated that Democrats are again willing to tie up votes on certain tax increases if Republicans don’t come to the bargaining table.

And he said Thursday that his caucus is fundamentally opposed to the sales tax proposal since they see it as a tax on the middle class when the state should be looking at other options, such as the income tax or the gross production tax on gas and oil.

Inman added that he’s not aware of any member of his caucus, or anyone else in the Legislature, who supports eliminating the sales tax exemptions.

“I can’t see any way in which a number, a vast majority or anywhere near the 164 taxes on services sees the light of day in this Legislature,” he said.

McCall offered a slightly more optimistic picture, saying GOP leaders are not ready to take any option off the table this early in the session.

“We feel like we have to address these one at a time and move forward where we can,” he said. “But it’s very clear the minority caucus is not interested … and we are going to start looking at the expense side with more efficiencies in state government and looking at under- and non-performing state assets.”

  • Bob Elliott

    State sales tax is already too high. Raising the tax on tobacco and fuel would decimate the poor and hurt the middle class. Maybe you should look for a decrease in spending? DUH! I think the Gov. should decrease tax credits and spending. Mary Fallin is a Republican right?