OKLAHOMA CITY (AP) — Oklahoma Gov. Mary Fallin proposed a major overhaul of the state's tax code on Monday, encouraging lawmakers to increase taxes on fuel, tobacco and sales as part of an effort to eliminate the corporate income tax and the state sales tax on groceries.
In her 30-minute State of the State address to the Oklahoma Legislature, the Republican said the changes to the sales tax are necessary as the state shifts from a manufacturing-based economy to one based on services.
"By expanding the sales tax base, this allows us to eliminate the state sales tax on groceries and the corporate income tax," Fallin said. "And it may be possible in the future to further lower the sales tax rate."
Her proposal to eliminate the sales tax on groceries was met with a bipartisan standing ovation from legislators on both sides of the aisle.
Fallin is trying to minimize the impact of a roughly $870 million hole in the budget, or nearly 12 percent of state spending, that threatens to decimate funding to core state agencies that have seen budgets slashed in recent years amid a downturn in the energy industry.
But it's unlikely her fellow Republicans in the GOP-controlled Legislature will wholeheartedly embrace the governor's plan to raise taxes or even broaden the sales tax base.
"We're always open to discussion," said Senate GOP leader Mike Schulz. "It doesn't mean that we could put 25 or 36 votes up there for any of those measures at this point."
Because of a state question approved by Oklahoma voters in 1992, any tax increase requires a three-fourths vote of the Legislature, or 76 votes in the House and 36 votes in the Senate.
Schulz, a Republican from Altus, said he's particularly concerned that increasing the fuel tax would disproportionately affect residents of rural communities who often have to drive farther to work, school or church.
New House Speaker Charles McCall said last week that newly elected Republicans who spent much of last year campaigning for office heard from constituents who are wary of further increases in the state's income tax.
"I believe the people are communicating to the Legislature that given the current economics, they don't want to see further increases in taxes, but those things will be discussed," said McCall, a Republican from Atoka.
House Democratic leader Scott Inman, whose caucus' support would be needed for any tax hike to pass the House, described Fallin's budget as a "mixed bag," praising her plan to cut the grocery tax and increase teacher pay. But he criticized her proposal to hike taxes on cigarettes, fuel and services that he said would unduly burden the poor and working-class Oklahoma residents.
"Today she offered up more than $1 billion worth of new taxes on the backs of middle-class and working-class Oklahomans," said Inman, an Oklahoma City Democrat. "While our caucus wants to find new revenues, we fundamentally disagree with the idea that shifting the tax burden from the wealthiest Oklahomans to the poorest of Oklahomans ... is the way to produce prosperity and growth in Oklahoma."
The governor is proposing to increase the state's tax on gasoline and diesel, currently among the lowest in the nation at 17 cents and 14 cents per gallon, respectively, to a regional average and dedicate that revenue to pay for transportation projects. Her proposal calls for increasing the tax on gasoline and diesel fuel to 24 cents per gallon.
The governor also proposed $60 million in her budget to fund an annual $1,000 across-the-board teacher pay hike that would be funded mostly through her plan to broaden the sales tax.
"The pay raise may need to be phased in and it may be targeted, but it must be done," she said.
Legislative leaders have said raising the salaries of public school teachers is a major goal this year. Teacher pay has not been increased since 2008 and the state faces a chronic teacher shortage as experienced educators seek higher-paying jobs elsewhere.
The Legislature convened on Monday and must adjourn before the last Friday in May.