A $50 million income tax cut plan for low-earning Arkansans, initially proposed by Gov. Asa Hutchinson, advanced out of a state Senate panel on Wednesday. The Senate Committee on Revenue and Taxation, consisting of five Republicans and three Democrats, passed the measure with no dissenting voices or votes. The bill would cut taxes for people making below $20,999 annually.
Republican Senate Majority Leader Jim Hendren of Gravette, who’s also the Governor’s nephew, is the lead sponsor. He said the plan would affect about 657,000 people.
“The approach that we take here, I think is pretty clear, is it’s a conservative tax cut that focuses on those that we have not addressed at all to this point,” Hendren said, speaking before the committee.
In 2015, Hutchinson signed into law income tax cut legislation of more than $100 million. It mainly affected middle and high income earners.
Under the SB115, or "The Tax Reform and Relief Act of 2017," people making up to $4,299 annually would see their state tax rate cut from 0.9 percent to zero percent. Those making between $4,300 and $8,399 annually would see their rates cut from 2.4 to 2.0 percent. Arkansans making between $8,400 and $12,599 a year would see their rate cut from 3.4 to 3.0 percent. Those earning between $12,600 and $20,999 on a yearly basis would see a full percentage point reduction from 4.4 percent to 3.4 percent.
Under the bill, income earners who make between $21,000 and $75,000 would see the tax rate for the first $4,299 of their income reduced from 0.9 percent to 0.75 percent.
Senate Democratic Minority Leader Keith Ingram of West Memphis, sits on the tax panel. He says Democrats were comforted by the fact the plan takes effect in 2019.
“So if things go bad, we can address it. I’m very concerned about our budget. I’m very concerned about the revenue. We’ve missed forecast five of the last six months,” he said.
But Hendren said the recent revenue figures did not worry him. He also echoed Ingram’s comfortable feelings about the plan taking effect in 2019
“I would be a little bit less comfortable if this took effect immediately or if it took effect or if it took affect the end of this fiscal year,” he told reporters. “But we’ve got an entire fiscal session [in 2018] if we needed to adjust because if revenue reports lag. So this gives us something to build on. It gives us a process.”
The bill would also require House and Senate leaders to appoint a 16-member task force to “examine and identify areas of potential reform within the tax laws of the State of Arkansas” and recommend any potential further tax legislation for the 2019 session.
The task force would be required to submit an initial report of recommendations and findings to the Governor, Speaker of the House and the Senate President Pro Tempore by December 1, 2017 and again by September 1, 2018. The task force would expire at the end of 2018.
The bill now heads to the full Senate. Hendren said a vote would probably take place Monday. An identical measure, HB1159, will likely come before the House Revenue and Taxation Panel on Wednesday. That’s where a competing bill, HB1161, known as “The Working Families Opportunity Act,” to create an Earned Income Tax Credit for Arkansans in low-income brackets will likely be considered as well. Democratic State Rep. Warwick Sabin of Little Rock is the lead sponsor of that measure.
Ingram said he is still holding out hope for the EITC.
“It’s proven to be very effective in other states. I think we can all agree that, whether you’re a Democrat or a Republican, that we need to do something to address those that are our lower income citizens,” he said.
Under an EITC, residents in affected brackets receive a refundable tax credit based on income and number of family members. Sabin told KUAR last week that he hopes his bill can be the basis for a compromise with the Governor’s plan.
“The difference is that when you cut the marginal tax rate you’re not really affecting the bottom line for most lower income Arkansans, because they’re more affected by regressive taxes like the sales tax and the gas tax…If we’re really serious about extending tax relief and trying to incentivize work, then the earned income tax credit deserves a really hard look alongside what the governor is proposing,” Sabin told KUAR last week.
The EITC is available in 26 states and the District of Columbia, according to the National Conference of State Legislatures. A federal tax credit was first passed into law by Congress in 1975.
The refundable tax credit model does have some bi-partisan support. Sabin’s bill is cosponsored by Republican State Sen. Jake Files of Fort Smith. Republican Rep. Joe Jett of Success, the chairman of the House tax committee who switched party affiliations last month, is also a cosponsor.
Republican Rep. Mathew Pitsch of Fort Smith is the House sponsor of SB115, and the sponsor of an identical bill, HB1159. He told reporters after the Senate Tax Committee meeting Wednesday that the $50 million tax cut bill and Rep. Sabin’s earned income tax credit bill would likely get a hearing in the House Revenue and Taxation panel on Thursday.
“We’ll see what the members of the House want to do either one of them,” Pitsch said. “I think yet that’s yet to be determined, which one they think is better. So we’ll put them both out there and let them vote on it.”
KUAR's Jacob Kauffman contributed to this report.