Governor inks bills for income-tax cut

He sees ‘boost to economy’ as rates fall for low earners starting in 2019

Surrounded by lawmakers Wednesday at the state Capitol, Gov. Asa Hutchinson signs legislation setting income-tax cuts for Arkansans who earn less than $21,000 in taxable income.
Surrounded by lawmakers Wednesday at the state Capitol, Gov. Asa Hutchinson signs legislation setting income-tax cuts for Arkansans who earn less than $21,000 in taxable income.

Gov. Asa Hutchinson signed into law on Wednesday measures that would implement his plan to cut individual income-tax rates for Arkansans with taxable incomes below $21,000, beginning with the tax year that starts Jan. 1, 2019.

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Gov. Asa Hutchinson thanks House Speaker Jeremy Gillam (second from left) and other legislators Wednesday after signing bills implementing a tax cut for Arkansans who earn less than $21,000 a year.

The identical measures cut income taxes for about 650,000 Arkansans with less than $21,000 in taxable incomes including 120,000 people in the lowest tax bracket who no longer will pay those taxes, state officials estimate.

With about a dozen lawmakers on hand in the Governor's Conference Room, Hutchinson signed into law Senate Bill 115 by Senate Republican leader Jim Hendren of Sulphur Springs and then he signed its twin, House Bill 1159 by House Republican leader Mat Pitsch of Fort Smith.

The measures are now Act 78 and Act 79, according to the General Assembly's website.

"This is a boost to the economy because those Arkansans will spend this money, and [the acts] give us a more competitive [individual income tax] rate," Hutchinson told reporters.

The tax cut is projected to reduce general revenue by $25.25 million in fiscal 2019, which starts July 1, 2018, and $50.5 million each year thereafter, according to the state Department of Finance and Administration.

"This is the most conservative and responsible tax cut that we can have and continue down the path of lowering our rates," Hutchinson said.

"There were many that wanted a higher level of tax cuts. There were many other different tax bills. [But] we focused on this, and ... this is what we can afford, and we will put it in the second year of the biennium, so we are making sure that we are responsible in our path toward tax cuts," he said.

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Some lawmakers had questioned whether the state could afford Hutchinson's tax cut, considering that tax collections have lagged behind the state's forecast so far in fiscal 2017, which started July 1, 2016. But their concerns apparently were addressed by state officials because the legislation sailed through the House and Senate.

The 2015 Legislature enacted Hutchinson's plan to reduce individual income tax rates for those making between $21,000 and $75,000. That law is expected to reduce general revenue by about $100 million in fiscal 2017.

During the first six months of fiscal 2017, net general revenue available for state agencies was $8.8 million below forecast, partly because of lagging sales-tax collections. But state officials have said they expect collections to rebound during the last half of the fiscal year and don't plan to cut the revenue forecast.

For fiscal 2018, starting July 1, Hutchinson wants lawmakers in the current legislative session to enact his proposed general-revenue budget of $5.48 billion -- a $153 million increase over the current fiscal year, with most of the increased revenue targeted for the state Department of Human Services.

For Arkansans with taxable income below $21,000, Hutchinson's tax cut will reduce the rate from 0.9 percent to zero percent for taxable income up to $4,299; from 2.4 percent to 2 percent for income from $4,300 to $8,399; from 3.4 percent to 3 percent for income between $8,400 and $12,599; and from 4.4 percent to 3.4 percent for income between $12,600 and $20,999.

The largest tax cut a single taxpayer could receive is $156, and a married couple could receive a $312 tax cut, according to the Department of Finance and Administration.

The law also creates a 16-member Arkansas Tax Reform and Relief Legislative Task Force to recommend further tax cuts for lawmakers to consider starting in 2019. The creation of the task force helped placate lawmakers who also wanted to cut rates for those making more than $75,000.

The task force will include five senators appointed by Senate President Pro Tempore Jonathan Dismang, R-Searcy. Also included would be Dismang or his designee in the Senate; Hendren or his designee in the Senate; and Senate Democratic leader Keith Ingram of West Memphis or his designee in the Senate.

The task force also will have five representatives appointed by House Speaker Jeremy Gillam, R-Judsonia, in addition to Gillam or his designee in the House; Pitsch or his designee in the House; and House Democratic leader Michael John Gray of Augusta or his designee.

Gillam said he plans to invite representatives who want to serve on the task force and then visit with them to get their thoughts.

Gillam and Dismang said they don't expect to make their appointments until near the end of this year's session.

Hutchinson said he hasn't set a goal for the amount of tax cuts that he wants the task force to recommend.

"My long-term goal is to get the rate down in Arkansas to 5 percent. I want to keep the focus on the income tax rate in this state," he said. "If you lose that focus, you're ... maybe you start going down the path of opening up more [tax] exemptions, and you are losing the competitive nature and what we want to do in our tax cuts and the ability to flatten that income tax rate."

The state's top income tax rate is 6.9 percent.

Earlier Wednesday, the Senate Revenue and Taxation Committee recommended Senate approval of House Bill 1162 by Rep. Charlene Fite, R-Van Buren, which would exempt military retirement benefits from state income taxes and cut the soft-drink syrup tax.

To pay for for those cuts, HB1162 would increase the sales tax levied on candy and soft drinks, levy income taxes on unemployment compensation and impose a sales tax on certain digital products. The legislation would become effective in tax years starting Jan. 1, 2018.

An identical bill -- Senate Bill 120 by Sen. Jane English, R-North Little Rock -- is in the House Revenue and Taxation Committee.

The proposed tax increases in the legislation have drawn criticism from Americans for Tax Reform President Grover Norquist, who has urged state lawmakers to ditch the proposed taxes and support an alternative bill sponsored by Rep. Bob Ballinger, R-Hindsville.

But Hutchinson said, "The other conservative and responsible approach was when it was came to providing the tax cuts ... for the military retirees ... to make sure that was paid for.

"There were some that were saying, 'We don't like to have those offsets [closing tax exemptions]. We don't like to have it paid off. We just want to absorb that into our budget.' That's not a conservative, responsible approach," he said.

A Section on 02/02/2017

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