Senate approves bill raising capital gains exempt from taxes

Critic notes move cuts into funding, services of community health centers

Legislation that would restore the 2013 capital gains tax cuts repealed by the Arkansas Legislature earlier in the session sailed through the Arkansas Senate on Tuesday over the objection of the Senate Democratic leader.

In a 24-9 vote, the Senate sent House Bill 1402 by Rep. Matthew Shepherd, R-El Dorado, to Republican Gov. Asa Hutchinson.

Gubernatorial spokesman J.R. Davis said the legislation will be signed into law.

HB1402 would increase the 40 percent exemption of capital gains from income taxes to 45 percent, retroactive to Feb. 1, and increase the exemption to 50 percent starting July 1, 2016.

It would also exempt from income taxes net capital gains in excess of $10 million if they are realized after Jan. 1, 2014.

HB1402 is projected to reduce state general revenue by $6 million in fiscal 2016 and $11.8 million in fiscal 2017, according to the state Department of Finance and Administration.

Act 1488 of 2013 raised the net capital gains exclusion from 30 percent to 50 percent, starting this tax year, and exempted capital gains received by a taxpayer in excess of $10 million, starting last tax year.

As part of Act 22, Gov. Asa Hutchinson and the Legislature allowed for the 50 percent capital gains exclusion through the end of January, and the exemption was reduced to 40 percent thereafter.

Act 22 reduces income taxes on Arkansans with taxable income between $21,000 and $75,000 per year.

The changes to capital gains taxes contained in the law were designed to free up money to help pay for income tax cuts for the middle class.

It also repealed the income tax exemption on capital gains exceeding $10 million, retroactive to Jan. 1.

Act 22 is projected by the finance department to reduce state general revenue by $25.5 million in fiscal 2016 and $93 million in fiscal 2017.

Senate Revenue and Taxation Committee Chairman Jake Files, R-Fort Smith, told senators that restoring the capital gains tax cuts repealed earlier in the session will benefit real estate investors, farmers and small-business men.

"This isn't just for the wealthy," he said.

Files said these capital gains tax cuts will help continue the flow of capital to the state and not burden investors.

But Senate Democratic leader Keith Ingram of West Memphis said the Legislature is cutting $4.95 million in grants to community health centers through its proposed $5.18 billion general-revenue budget to help restore capital gains tax cuts repealed earlier in this session.

The cuts for community health centers would eliminate a doctor and a couple of nurses in his area.That doctor treats about 1,500 people in a year that "are not getting health care because we chose to cut the capital gains of the most wealthy in our state," Ingram said. "That message is not one I am proud of."

Sen. Gary Stubblefield, R-Branch, said a community health center in his district is already talking about the possibility of layoffs. The Legislature's Joint Budget Committee, Stubblefield noted, also declined to approve the use of surplus state funds to improve the conditions of buildings at the state's human development centers.

The state has human development centers in Arkadelphia, Booneville, Conway, Jonesboro and Warren. They provide developmentally disabled residents with medical care, therapy and other services.

Senate President Pro Tempore Jonathan Dismang, R-Searcy, said legislative leaders made sure the state general-revenue budget includes $4.3 million in rainy-day funds for cases such as community health centers "if they got into a bind."

If there is a need that arises, a request can be made to the governor for the rainy-day funds for the community health centers, he said.

Metro on 04/01/2015

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