Scheduled tax cut poorly timed, Democratic candidates say, but Republicans more optimistic

FAYETTEVILLE -- Budget repercussions from the covid-19 pandemic have been better than feared, but Democratic candidates in contested Northwest Arkansas legislative races wonder if tax cuts set to take effect in January are a good idea.

Others said they're certain the tax cuts are not a good idea.

Most of their Republican opponents, meanwhile, think the situation bears watching, but said the state has successfully managed the fallout so far.

The candidates gave their opinions in response to a questionnaire from the Northwest Arkansas Democrat-Gazette. The candidates are all on the Nov. 3 general election ballot and seek to represent districts that include at least some part of Benton or Washington counties. All but three of the 26 candidates participated.

The question about the state budget was: "The pandemic has delivered a heavy blow to Arkansas' revenue collections. How should the General Assembly respond? Which budgets should be cut and which ones should be increased? Should Arkansans be asked to pay more to cover essential services?"

Since the questionnaire went out Aug. 5, state revenue has shown strong growth. A Sept. 3 revenue report showed Arkansas' general revenue tax collections in August up $56.9 million, or 11.2%, compared to a year ago to $564.9 million. The figure beat the state Department of Finance and Administration's forecast by 10.6%.

The state Department of Finance and Administration cut the fiscal 2021 forecast for net general revenue available to state agencies by $205.9 million in a projection released April 2, citing an expected recession from the pandemic. State general revenue tax collections fell 28.3% that month compared to April 2019 -- $270.9 million less.

Collections were down from last year for May and June. An increase in July revenue was mainly because of the decision to delay the state income tax filing deadline from April 15 to July 15.

September collections were down compared to September 2019, but only by 2%. September 2020 collections were $591.9 million.

The state has an income tax reduction set to take effect in January. The scheduled cut passed the Legislature in 2019 and was phased in over two years. The January reduction will drop the top-tier state income tax bracket from 6.6% to 5.9%. Those in that tier make $80,000 a year or more in taxable income. The cut this January is expected to reduce the state income tax haul by $22.9 million.

Almost 70% of the money retained by taxpayers in the January tax cut will go to people making more than $456,000 a year, critics of the plan estimate.

The state cut its general revenue budget for the fiscal year that ended in June by $353.1 million, taking that action in March to reduce the budget to $5.38 billion.

"The Legislature needs to return from recess to repeal the tax cut that was given to the wealthiest Arkansans, those making over $456,000," said Kelly Krout, Democratic nominee for the House District 90 race.

"We need an equitable tax system that supports everyone in our community. We are in a time where people are experiencing unprecedented need, asking Arkansans to pay more to cover essential services is not the answer."

Krout's opponent, Republican Kendon Underwood, declined to respond to the questionnaire.

Krout is one of the four candidates, all Democrats, who call the upcoming tax reduction and the 2019 legislation creating it a mistake. One of those four is incumbent Rep. David Whitaker, D-Fayetteville in House District 85.

"Last session, my Republican colleagues gave a tax cut to the state's top 1% of earners. Faced with a budget shortfall due to covid, the governor charged ahead with this tax cut anyway. Our state's top earners did not need a tax cut."

Whitaker's opponent is Republican Brian Hester. He is one of three candidates, all Republicans, who responded that the chief solution to tough budget problems is to get the state's economy back on track.

"Again, getting people back to work and getting businesses back on their feet will go a long ways toward making up ground on their recent struggles," he said.

Another Democratic incumbent, Rep. Nicole Clowney of Fayetteville, said income tax cuts at the top end of the brackets should stop after the January step. The pandemic has already done too much economic damage to pass more cuts, she said.

"Now, more than ever, we must shore up our state unemployment insurance fund, invest in our health care systems and workers, our first responders, our teachers, our schools, our childcare, our grocery store workers, our postal service, our community colleges and our universities," Clowney said. "And this work starts with refusing any more tax cuts for the wealthiest, until we invest in these priorities and people – investments that we know will pay dividends far into the future."

Clowney's opponent in House District 86 is John La Tour, one of the Republicans who see a revived economy as the best answer for any questions about the budget.

"They should get our citizens back to work so that we can get our economic engine back to generating revenue collections," he said. "We can use common-sense safety measures to curtail the spread of the virus."

Four more Democrats said a delay or repeal of the scheduled January tax reduction should be the first action if the state gets in budget trouble. Nine of the 12 Democrats responding to the questionnaire said the tax cut should be repealed, should be considered for repeal or should go no further.

Eight of the 11 Republicans answering the questionnaire said the state had managed the crisis so far and should keep adapting to circumstances.

Rep. Jim Dotson, R-Bentonville, in House District 93 noted the state's Revenue Stabilization Act automatically cuts the budget if expenses exceed revenues even if the Legislature took no action at all. Vital expenses such as education and interest payments on state debt wouldn't be touched even in such drastic circumstances. The stabilization act passed in 1945.

His challenger, Daisy Bonilla, is one of the four Democrats who said the upcoming tax cut should be repealed.

Incumbent Sen. Jim Hendren, R-Sulphur Springs, also cited the Revenue Stabilization Act. His Democratic opponent, Ryan Craig, did not respond to the questionnaire.

Three of the Republican candidates and one of the Democrats pointed out how federal taxpayer pandemic relief has greatly eased the burden on state and local governments.

The Answers

The following are the complete answers given by candidates in contested races for the Arkansas Senate and House to the following question:

“The pandemic has delivered a heavy blow to Arkansas’ revenue collections. How should the General Assembly respond? Which budgets should be cut and which ones should be increased? Should Arkansans be asked to pay more to cover essential services?”

An asterisk (*) by the candidate’s name signifies an incumbent.

House District 80

Charlene Fite (R)* — It’s important to note that some spending, like education, is mandated and must be funded first. The good news is that state revenues have remained fairly steady since the pandemic hit our state in March, but we must continue to monitor the situation month-to-month and tighten the budget where needed. Where shortfalls exist, I have the utmost confidence in our legislators, the governor and state agencies to address those needs.

Lou Reed Sharp (D) — It was greatly, and reasonably, feared that Arkansas revenue collection would be hit by the pandemic, but the combination of federal and state unemployment benefits have buoyed our economy for the moment. Arkansas finance officials have said that our sales tax revenue collection has been higher than expected. I think where we will run into trouble is income tax revenue. Before we start cutting the state budget, which provides essential emergency programs and good paying jobs, we need to first address any budget shortfall by repealing or delaying the recent tax cut for the wealthiest 5% of Arkansans.

House District 85

David Whitaker (D)*— Last session, my Republican colleagues gave a tax cut to the state’s top 1% of earners. Faced with a budget shortfall due to covid, the governor charged ahead with this tax cut anyway. Our state’s top earners did not need a tax cut. Our state’s working families and middle class needed a tax cut. We need to restructure our tax system, cutting taxes for Arkansans struggling to make ends meet and ensuring that our highest earners and corporations pay their fair share. I will oppose cuts of any kind to K-12 education, higher education or public health. We should also pursue savings through much needed criminal justice reform by enacting policies to significantly reduce our incarcerated population and thereby reducing the need for our bloated, costly and inhumane corrections industry.

Brian Hester (R) — While I understand that many areas across the state and more specifically in NWA have been hit hard, throwing more money at every issue is not the answer. Again, getting people back to work and getting businesses back on their feet will go a long ways toward making up ground on their recent struggles.

House District 86

Nicole Clowney (D)* — I’ve never been prouder of Fayetteville than I was seeing how our community banded together to help keep our local businesses and workers afloat. But the work is far from over, and many in our community are still hurting. This moment requires even greater state investment in the people and the things that have pulled us through this. Now, more than ever, we must shore up our state unemployment insurance fund, invest in our health care systems and workers, our first responders, our teachers, our schools, our childcare, our grocery store workers, our postal service, our community colleges and our universities. And this work starts with refusing any more tax cuts for the wealthiest, until we invest in these priorities and people – investments that we know will pay dividends far into the future.

John La Tour (R) — The General Assembly should get our citizens back to work so that we can get our economic engine back to generating revenue collections. We can use common-sense safety measures to curtail the spread of the virus.

House District 87

Robin Lundstrum (R)* — Actually, tax collections are up at the state level, however needs are also up. We will have to look at our budget and decide what is an essential service and what is not. We will also need to privatize some services. The transformation process that Governor Hutchinson, with the Legislature, started in the 2019 session will lead to shrinking of government over time and it is up to each coming Legislature to hold the line on spending and demand efficiencies though this process. The state was given $1.25 billion to help offset covid expenses and an additional $523,221,443 million in additional federal dollars to help us meet the needs brought on by covid. The problems we face now will be from over regulating businesses so much so that they cannot recover. Some of the rules and regulations placed on business during covid must be removed as they are destroying small businesses and some have closed permanently. These are jobs and dreams lost. Arkansas taxpayers should not be asked to pay more to cover essential services. The taxpayers are the ones that made it possible for us to receive the vast amount of federal tax dollars we have received and we owe them a thank you not a tax increase!

Michael Bennett-Spears (D) — The number one thing should be a repeal of the tax cut enacted earlier this year that primarily benefits those making over $456,000 a year. This deprived the state of critical revenue at a time that it needed the most and is hurting everyday Arkansans. Arkansans should not be asked to pay more to cover essential services when their pockets are already strained to the max. This pandemic has made it starkly apparent that we must put more financial support behind community support programs and education. The education budget should be increased, so that every child in Arkansas can have access to a high quality public school education. Instead of cutting the budgets of other programs or increasing the financial burden of Arkansans, we should be looking into ways to expand new revenue streams available to the state. A prime example of this is medical marijuana, which was approved overwhelmingly by voters in 2016. The incredibly slow rollout of this program, and lawmakers’ continued resistance to it despite this vote, has cost the state untold millions of dollars in revenue. If we are to thrive as a state, we must embrace these new opportunities and maximize their potential.

House District 88

Clint Penzo (R)* — During our fiscal session this year, we already made budget cuts in anticipation for the decrease in revenue. The state actually had a surplus for the fiscal year. Our new fiscal year started on July 1st, 2020. The state collected $52.7 million more in tax revenue than projected for the month of July. Our state is currently running efficiently, and our citizens shouldn’t be asked to pay more.

Hawley Woods (D) — I need to do more research before I can say exactly what plan is the right one. Essential services will probably need additional support, but I can’t tell you the best method at this time.

House District 89

Megan Godfrey (D)* — The General Assembly has already made some tough calls in anticipation of a tough year ahead, and I hope our thoughtful fiscal approach will prevent more severe cuts down the road. Arkansas is constitutionally required to balance our budget, and in response to sharply reduced revenues, I voted for a budget this spring that made spending cuts essentially across the board. However, I was relieved that we concluded our fiscal year in June with revenues $360 million ahead of projections, and I hope we will be able to fully fund education, health care and other critical state functions. If revenues turn out to be insufficient, then instead of making further cuts that could endanger Arkansans’ health and safety, I would seek to postpone the tax cuts for the highest income earners set to take effect in January.

Jed Duggar (R) — The pandemic is causing the state and local governments to make sweeping changes to their budgets. While this is a tough decision, if we must make cuts, the fairest way would be an across the board proportional cut to each department. Obviously, we will have to set priorities for public health, safety and economic relief. We have several months to see if things improve before we have to make that decision. When a family’s income decreases, they have to tighten their belt and shrink their spending, I believe our state government should do the same. We are all learning from this experience, and we will have to make sacrifices in our government budget.

House District 90

Kendon Underwood (R) – Declined to participate in the survey.

Kelly Krout (D) — The pandemic has been rough, but this issue is not covid specific, the issue is consecutive tax cuts over the past few sessions of the General Assembly. We continue to make life cheaper for the richest Arkansans, and I think we should revoke the most recent tax cut that benefited those Arkansans making over $400K a year. Our middle and lower class are of course the ones most hurt in times like these.

House District 91

Nick Jones (D) — Reporting has shown that state revenues have decreased, but not nearly as badly as predicted. With that, a place to start would be to again look at the tax cuts the governor recently signed into law reducing taxes on corporations and the wealthy. I would not advise asking regular Arkansans to carry that burden. We could also look at how much the state spends on incarcerations. True criminal justice reform could save money as well.

Delia Haak (R) — Thankfully local, county and state revenue have been fairly stable during the past months since the beginning of the pandemic. Additionally, Arkansas received $1.2 billion in federal CARES Act funds to offset direct costs related to the pandemic, and this is money that taxpayers are ultimately funding.

House District 93

Jim Dotson (R)* — Balancing state revenue collections with expenses is always challenging. Fortunately, we have a balanced budget requirement, so, if revenues do not make projections, spending is automatically reduced across the board. However, certain priorities like education are always fully funded even if reserves have to be tapped. Fortunately for now, revenue collections have not been hit as hard as anticipated, and the state ended the fiscal year at the end of June with a small surplus.

Daisy Bonilla (D) — The Legislature needs to return from recess to repeal the tax cut that was given to the wealthiest Arkansans, those making over $456,000. We need an equitable tax system that supports everyone in our community. We are in a time where people are experiencing unprecedented need, asking Arkansans to pay more to cover essential services is not the answer. As a state, we need to make sure every dollar we spend is an investment in our community. Covid-19 has highlighted how much more support our schools need and that teachers and public schools play a critical role in the health of our communities. We need to ensure adequate funding for our public education system. Repealing the tax cut for wealthy Arkansans would help accommodate this budget increase. We should also look at adjustments to our corrections budget: instead of spending $163 million on a private prison, with a history of poor conditions and increasing reoffenders, we should direct that money to areas like youth services, behavioral health and economic development.

House District 94

John Carr (R) — We are very fortunate in Arkansas that business is bouncing back much quicker than originally forecasted. Before the pandemic, the state was projected to bring in a $300M surplus in revenue. The Legislature met in a special session to trim expenses to save $200M. The revenue taken in since the pandemic has exceeded the revised forecasts.

Jene Huffman-Gilreath (D)— I believe lawmakers need to be prepared to return to work even though the session has ended. The reduction in income taxes for the highest brackets needs to be reevaluated, and a more equitable income tax bracket needs to be created. The state also needs to look at areas where the greatest return comes, such as education. I agreed with the governor’s decision to release nonviolent offenders from prison, which reduced the overall cost of incarcerating those individuals. We are in a global pandemic that has hit every nation, we may need to call upon Arkansans to pay more in the short run to provide essential services for the good of society, but we need to take every other action possible first.

House District 96

Josh Bryant (R) — The current Arkansas Legislature did the appropriate action in making cuts to the fiscal budget in the face of uncertainty to the economic impact. Many of these cuts within the state have been restored due to the current revenue collections surpassing expectations. Arkansans should require their elected leaders make do with their tax base and not seek more funding by way of additional taxes or fees.

Jon Comstock (D) — Essentially, I believe that we need to evaluate how dollars are spent with a view to achieving the highest public good – which means ‘what really helps families’. We wonder why we are 5% of the world’s population but 25% of the world’s incarcerated population. We as a people are not ‘worse actors’ than the rest of the world. What we have done is to create a complicated pipeline (criminal justice system) including what has been referred to as the ‘school to prison’ pipeline, that results in over criminalization of conduct, and sentencing (in terms of the number of people sent to prison and the time period), which is disproportionate to the conduct complained about. We need to reallocate dollars spend on the ‘war on drugs,’ which is really a war on families and has been an abysmal failure. We are slowly destroying our nation from within because we fail to treat substance abuse as a health problem. For the most part, it’s not our tax rate that is out of line, it is the priorities on which we spend our dollars. And yes, the highest income earners should be asked to shoulder a greater burden of the cost. We need to keep in mind that those ‘at the top’ generally benefit from a variety of business rules and regulations that protect their assets while shielding them from full accountability for their conduct.

Senate District 1

Ronetta Francis (D) — Many Arkansas families have also been adversely impacted by the pandemic with more than 100,000 Arkansans unemployed. At one point, the state’s unemployment rate was as high as 10.8%. Many small businesses in Arkansas have had to close their doors for an extended period and some for good while some larger companies reduced their workforce in order to stay afloat. Because many Arkansas households are faced with making difficult financial choices due to unemployment or underemployment, I do not believe this is the time to raise taxes on Arkansans. I am encouraged and cautiously optimistic that the projected state revenue shortfall, largely driven by the pandemic, will not be as dire as some have originally forecast. I believe our economy in Arkansas remains strong over all. Our legislators, who are charged with making sound fiscal policy to benefit all Arkansans, should continue to monitor the revenue trends and make budget adjustments where needed. Services to our most vulnerable citizens, particularly children and the elderly, should not be disrupted. We must also continue to be mindful of the economic disparities that exist within our region and across the state.

Bart Hester (R)* — Declined to participate in survey.

Senate District 2

Jim Hendren (R)* — We successfully used the revenue stabilization act that prioritized spending to hold K-12 education, the Health Department, and DHS harmless during the pandemic. Other budget items are subject to cuts depending on how the revenue comes in. Fortunately, the revenue stream is above forecasts so far and dramatic cuts will likely not be necessary.

Ryan Craig (D) – Did not reply to survey.