An Arkansas House panel on Thursday approved two separate measures that would provide tax relief to low-income citizens.
One, a $50 million dollar cut known as the “Tax Reform and Relief Act of 2017,” would cut the marginal income tax rate for roughly 657,000 Arkansans who make less than $21,000 a year. The bill, adopted from Gov. Asa Hutchinson's plan, would also create a task force to study the possibility of further tax legislation in the 2019 session. The bill unanimously passed out of the House Revenue and Taxation Committee.
Rep. Mathew Pitsch, the bill’s lead House sponsor, tried to reassure lawmakers concerned about the impact of a decline in state revenue if the cuts were to pass. Republican Rep. Dan Douglas questioned Pitsch about what kinds of funding the state may need to reduce.
“I love the idea of too much taxes. We all pay too much taxes,” Douglas said. “But we still have to operate government. We have needs. We have highways. We have education. We have developmentally disabled children that need funds. There’s plenty of places for money to go. At my house or in my house or in my business when I have to cut my revenue I have to cut my expenses. Is there a correlating reduction in expenditures to help pay for this tax cut?”
“This is a line item that has his priority put on it, so that priority lines up with the spending on special needs, education, highways, etc.,” Pitsch responded, adding that it would be the task force’s purpose to assess how the state could balance its tax and spending needs.
Democrats on the panel also voiced concerns about how the state could afford the tax cuts when spending for certain programs may be currently insufficient or in flux.
“Understanding that we really have a lot of state needs that have not been addressed, how do you explain why we would put this cart before the horse, so to speak?” asked Democratic Rep. Vivian Flowers.
“I guess you could say we have not yet voted on other things, but this is [the governor’s] priority. He wants this tax cut. We want a tax cut for our citizens and that’s what we’re doing here. We’re setting a priority,” responded Pitsch.
The competing measure that advanced out of the tax committee Thursday is backed by Democrats, but it also has bipartisan support. Known as the “The Working Families Opportunity Act,” it would create a state earned income tax credit for poor citizens. It passed with some dissension on a voice vote.
The measure is sponsored by Democratic Rep. Warwick Sabin in the House and Republican Jake Files in the Senate and is estimated to cost the state $40 million. In testimony, Sabin said the EITC had a proven track record to incentivize work, move people out of poverty, reduce dependency on social services and stimulate economic growth.
“We’ve got the data to prove it, we’ve got a bi-partisan group and we’re hopeful we can work with the governor and our colleagues in the legislature to see this policy implemented,” Sabin said after the meeting
Representatives from Entergy Corporation, Southern Bancorp, and Arkansas Advocates for Children and Families testified in favor of the bill, variously supporting the arguments of Sabin’s own testimony. David Ray of Americans For Prosperity testified against it, arguing the EITC is known to be affect by fraud. Sabin respond to fraud claims generally saying that in many cases on the federal and state levels, initial cases flagged for fraud eventually are cleared.
Sabin said after the bill advanced that he hopes to start a process to reconcile his and the governor's plan, as there is little room in the state budget to pass both measures. House Revenue and Tax Committee Chairman Joe Jett, a Republican who recently switched party affiliations but who is a co-sponsor of Sabin’s bill, said after the meeting he too would like to soon see a compromise between the Governor’s $50 million tax cut and Sabin’s $40 million plan.
“Obviously we can’t afford $90 million. We all know that,” Jett said. “But my intentions are and my wishes will be that they sit down together and work it out in a meaningful solution that does not hurt the budget but gives the working people of Arkansas a tax cut.”
This post was updated at 6:30pm on 1/19/17.