Gov. Fallin strikes out on big tax cut plan

OKLAHOMA CITY (AP) -- With strong GOP majorities backing her up in the House and Senate, Gov. Mary Fallin laid out an ambitious plan at the start of the legislative session to deeply slash the state's income tax and drew praise for taking on what has long been a dream of fiscal conservatives.

With similar efforts under way in Oklahoma's neighbors Kansas and Missouri, the second-year governor was hailed in editorials around the country for leading the charge in what was dubbed "The Heartland Tax Rebellion."

However, Republicans in the Legislature started chipping away at Fallin's aggressive tax cut proposal, first by balking at eliminating the numerous deductions and exemptions that were to be used to help offset the cost of the plan. Some even began to wonder out loud if the time was right to cut taxes at all. Fallin retreated and finally, with a week left in the session, announced a deal with GOP legislative leaders to eliminate some deductions and drop the top rate from 5.25 percent to 4.8 percent, with a one-time trigger to drop the rate further.

But even that deal quickly fell apart as rank-and-file Republicans took a closer look at how many Oklahoma taxpayers -- nearly one-quarter of all tax filers -- would end up seeing their tax liability increase under the plan. Fallin and her aides started scrambling to keep the proposal alive, even suggesting that she might call a special session to bring lawmakers back to the Capitol to keep her tax-cut dream alive. But when the gavel fell Friday to close the 2012 session, Fallin ended up with nothing on the tax-cut front to show for her efforts.

"I can't tell you how many hours I met with House and Senate leadership. I bought them lunch. I bought them breakfast," a clearly disappointed Fallin said Friday after the session ended. "It is what it is, and I'm not going to give up.

"All you can do now is go forward, clean the slate, start talking this fall, and I do believe ... leadership is committed to a tax reform plan next year."

Fallin's original proposal that she outlined in her State of the State address to lawmakers in February was, as she described it, "a game-changer for Oklahoma." It would have immediately slashed the top rate from 5.25 percent to 3.5 percent, beginning in 2013, and then continued to cut the rate by one-quarter of 1 percent each year that certain revenue growth triggers were met.

The proposal offset the loss of hundreds of millions of dollars in revenue by eliminating dozens of tax exemptions, deductions and credits enjoyed by businesses and individuals.

But the idea of eliminating some of the personal deductions, like those enjoyed by seniors and military veterans, upset voters, and lawmakers started to feel the pressure back home in their districts. When legislators returned to the Capitol, they began getting hammered by lobbyists for special interest groups fighting to keep their tax giveaways in place.

"The political will to reform the tax code was just not there," House Speaker Kris Steele, R-Shawnee, said simply.

As a result, the Legislature continued to modify the various tax-cut proposals that were moving through the Legislature until finally Fallin acknowledged her original proposal would not pass. With just one week remaining in the session, House and Senate leaders gathered in Fallin's Blue Room and announced they'd reached a deal to cut the top rate and pay for the cut with a combination of revenue growth and the elimination of some personal exemptions.

But when an analysis of the plan showed an estimated 400,000 tax filers would see their tax liability increase under the proposal, it was doomed in the House, where the Democratic minority was locked up in opposition, and many Republicans derided the fact that there winners and losers under the plan. The proposal cleared a House committee, but wasn't even given a vote on the floor.

When House leaders scrambled to come up with an alternative proposal in the final week of session, it got a frosty reception from the Senate, where President Pro Tem Brian Bingman said it wouldn't even be given a hearing and accused House leaders of reneging on their deal.

"We wanted to give that hard-earned money back to our taxpayers," said Bingman, R-Sapulpa. "And while we remain frustrated by our House colleagues' refusal to hold a vote on the tax cut agreement they signed off on, we're still committed to helping the governor pass a significant tax reduction."

While Democrats were outnumbered 32-16 in the Senate and 67-31 in the House, they were eager to claim as a success the GOP's failure to pass a tax cut that they bitterly opposed every step of the way.

"It is a victory," said House Democratic Leader Rep. Scott Inman, D-Del City. "I think at the beginning of the session, there was an air of inevitability on the tax cut plan. The governor, legislative leaders ... everyone believed a tax cut was going to happen.

"But we in the House Democratic caucus, once we had a chance to look