The pay for active duty military in Arkansas would be exempt from state income taxes under a measure advanced by a Senate panel Wednesday, the first major tax cut headed to a vote in this year's session.
The Senate Revenue and Taxation Committee advanced the proposal, which officials say will cost Arkansas about $7.2 million annually. The lawmaker behind the proposal says the exemption would benefit about 6,300 people. Twenty-three of the Senate's 35 members have signed on as sponsors of the tax cut, which could go before that chamber as early as Thursday.
"I think it's time to take another look at this and try to provide a cut to those who have really paid a heavy price," Sen. Jim Hendren, R-Gravette, told the panel.
The cut is among dozens that have been proposed after Republicans won control of the House and Senate partly on a vow to reduce taxes. House Speaker Davy Carter, R-Cabot-last week called on lawmakers to pass $150 million in tax cuts. Senate leaders have not offered a specific figure on the tax cuts they're seeking.
The tax cut measure passed despite warnings from state finance officials that there's no room in Gov. Mike Beebe's proposed budget for additional tax reductions. Beebe, a Democrat, has proposed cutting the state's grocery tax, but only if its desegregation settlement payments or bond obligations decrease by $35 million over a six-month period.
"It's our duty to come to you and tell you that within that balanced budget, if this money is not in that budget then we have to look to the budget to take it out and ask you to weigh that very seriously as you make your decisions," Tim Leathers, deputy director of the Department of Finance and Administration, told the panel.
Sen. Jake Files, R-Fort Smith, the committee's chairman, told reporters that the panel is ready to begin looking at several competing tax cut measures, after state officials reduced the projected shortfall in the state's Medicaid program. Senate Republicans have said they're interested in tax cuts that they believe will attract businesses, such as reductions in the taxes manufacturers pay for utilities. House Republicans have proposed cuts to the state's income taxes.
The panel also advanced a tax increase to help the financially struggling Forestry Commission, which handles the state's wildfire fighting efforts. The proposal by Sen. Bill Sample, R-Hot Springs, would raise the tax that private timberland owners pay from 15 cents an acre to 20 cents an acre. The tax increase would be effective for assessment years beginning on and after 2013 and would raise about $700,000 a year.