Earned income tax credit plan for poor falters

House panel then supports anew capital-gains levy cuts

Rep. Warwick Sabin, D-Little Rock, presents his proposed tax credit aimed at low-income Arkansans during a meeting of the House Revenue and Taxation Committee at the Arkansas state Capitol in Little Rock, Ark., Tuesday, March 24, 2015.
Rep. Warwick Sabin, D-Little Rock, presents his proposed tax credit aimed at low-income Arkansans during a meeting of the House Revenue and Taxation Committee at the Arkansas state Capitol in Little Rock, Ark., Tuesday, March 24, 2015.

A bill creating a state earned income-tax credit for low-income Arkansans failed to clear the Arkansas House Revenue and Taxation Committee on Tuesday.

Then, the House tax committee endorsed legislation restoring capital-gains tax cuts that were repealed earlier in this legislative session, after it changed the bill to fix an error in the version that the committee approved last week.

Rep. Warwick Sabin, D-Little Rock, told the committee that the Legislature enacted a tax cut for the middle class earlier in this session and plans to enact legislation to restore the capital-gains tax cuts.

He said he was asking for approval of his House Bill 1344 "in order to bring some tax relief to the only segment of our tax-paying population that has not received any relief this session, and that's for those making less than $21,000 a year and those working families who got a minimal break from the middle-class tax cut we've already passed."

Sabin said his bill offers tax relief for working families through a state earned income tax credit that provides an incentive to work by making the credits contingent on earned income such as salaries and wages.

The bill would create the Working Families Opportunity Credit equal to 1.25 percent of the federal earned income tax credit for tax years starting in 2016. The state earned income tax credit would increase to 2.5 percent of the federal earned income tax credit for tax years starting in 2017 and rise to 5 percent for tax years starting in 2018.

HB1344 would reduce state general revenue by $10 million in fiscal 2017, $20 million in fiscal 2019 and then $40 million a year in fiscal 2019 and each subsequent fiscal year, the state Finance and Administration Department estimated.

Sabin said about 279,000 Arkansans receive the federal income-tax credit each year.

The working families, who would be eligible for this earned income-tax credit, already pay a much higher share of their incomes for state and local taxes than more wealthy Arkansans do, Sabin said.

State Rep. Charlie Collins, R-Fayetteville, who is the tax committee's former chairman, said he's "fine with targeting the group of folks that are low-income earners in Arkansas" with $40 million a year in tax relief.

"I believe we need to focus it on all taxpayers, every one of them, the job creators at the top of the scale, the middle-class taxpayers that the governor's plan just focused on, and our lowest [income] hardworking Arkansans," Collins said.

"If we are concerned that the dollar per person [income-tax relief] is not high enough, let's find a way to slow the growth of government spending so that we can increase the amount of tax relief that we target against all working Arkansans on the income tax tables, including and focused on our lowest income-earners," he said.

"I just think it is a superior way to go because you get the economic demand side effect of $40 million going into the economy, and you also get the incentive-creating effect of lower tax rates on work," Collins said before the committee declined to recommend approval of the bill in a voice vote.

Act 22, enacted earlier this year, reduces income tax rates for Arkansans with taxable incomes between $21,000 and $75,000 a year and repealed certain capital gains tax cuts enacted in 2013. It is projected to reduce state general revenue by $22.9 million in fiscal 2016 and $90.3 million in fiscal 2017, according to the state Department of Finance and Administration.

In a voice vote, the committee subsequently endorsed HB1402 by Rep. Matthew Shepherd, R-El Dorado, which 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.

The action came after it added an amendment to the bill specifying that the capital-gains exclusion in the month of January of 2015 would be 50 percent to fix an error in an earlier version of the bill.

The bill also would exempt from income taxes net capital gains in excess of $10 million if they are realized after Jan. 1, 2014. It is projected to reduce state general revenue by $6 million in fiscal 2016 and $11.8 million in fiscal 2017, the finance department said.

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 that reduces income-tax rates on Arkansans with taxable income between $21,000 and $75,000 a year, Gov. Asa Hutchinson and the Arkansas 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 also repealed, retroactively to Jan. 1, the income tax exemption on capital gains exceeding $10 million.

Metro on 03/25/2015

Upcoming Events