A tax hike and employee pay increase proposal unveiled Monday by Gov. Mary Fallin and Republican leaders face an uncertain future in the House, where it must garner Democratic support to secure passage.
The plan includes: a $1.50 additional tax on cigarettes; a 6-cent per gallon hike on gas and diesel; a hike on taxes on low-point beer; and restoration of the state’s ability to refund the earned income tax credit, which is given to low-wage earners.
The plan also calls for a $3,000 teacher pay raise and a $1,000 pay raise for state employees, excluding those in higher education, legislators and statewide elected officials. Some state employees have not had a raise in more than 11 years, Fallin said.
Democrats say it fails to include a hike in gross production taxes or an increase in the income tax on high wage earners.
“Instead of asking the oil and gas industry to pay a fair and just tax, Republican lawmakers would rather tax working class Oklahomans,” according to a statement from the House Democratic Caucus.
“We believe that offering teachers and state employees a pay raise while simultaneously raising their taxes to pay for the raise is both disingenuous and a terrible way to balance a budget.”
Fallin called lawmakers into special session on Sept. 25 after a successful legal challenge to the cigarette tax that was passed last session.
The Oklahoma Supreme Court said lawmakers violated the law by passing it as a “smoking cessation fee” because they couldn’t get the super majority of votes to pass it as a tax.
The bulk of the $215 million it was expected to generate was to go to the Oklahoma Health Care Authority, the Oklahoma Department of Mental Health and Substance Abuse Services and the Department of Human Services.
Coupled with a loss in federal matching dollars, the budget hole is closer to $500 million.
Raising taxes requires 76 votes in the House, where the Republican Party holds 72 seats, but some of their members oppose the plan. The plan would need the support of some of the 28 Democrats to secure approval.
“It is a terrible proposal,” said Rep. Jason Murphey, R-Guthrie. “It doesn’t have the votes. It will not pass.”
He said many lawmakers will listen to constituents who do not want a hike in fuel prices.
Fallin, flanked by House Speaker Charles McCall, R-Atoka, and Senate Pro Tem Mike Schulz, R-Altus, announced the plan during a Capitol press conference where no questions were taken.
“It has been very difficult to find agreement, but we can’t let the perfect be the enemy of the good,” Fallin said. “We have to find resolution to close the $215 million budget gap and to put out state on a sustainable, stable path forward. We can’t keep having budget shortfalls year after year.”
McCall said the people of Oklahoma support the plan.
“It boils down to this,” McCall said. “If you support health care, if you support education, a teacher pay raise, a pay raise for state employees, restoration of the earned income tax credit for low income families in this state, you vote yes.
“If you don’t want to vote for those things, you don’t think those things are important, you are voting no.”
Rep. Cory Williams, D-Stillwater, said the plan was irresponsible and regressive.
“I think they are having a really fancy dog and pony show,” Williams said. “They believe by doing this they will turn up the pressure on us. Fundamentally, our caucus does not believe in shifting the tax burden to the working poor and the middle class.”
Williams said the oil and gas industry and high income earners need to contribute to solving the problem.
Senate Minority Leader John Sparks, D-Norman, said the proposal will fail on the House floor. Republicans will then act surprised, which is “all theater,” Sparks said.
Sparks said that once the measure fails, Republicans will make more cuts to state agencies and rely on cash to fill budget holes.
The plan does not include use of $83 million in cash, but does include about $25 million from the state’s Rainy Day fund, according to the Office of Management and Enterprise Services.