LITTLE ROCK — A state legislative committee recommended three tax-cut bills Tuesday that the state estimates would lower its revenue $50 million a year, with supporters saying the legislation will create jobs in Arkansas.
Gov. Mike Beebe’s finance officials opposed the bills, telling the House Revenue and Taxation Committee that it’s speculative to suggest any jobs will be created and that the revenue loss could hamper core government services, such as education and prisons.
The action by the Republican-led committee comes three days after Beebe, a Democrat, addressed a state Democratic Party convention by warning of tax-cut bills that promote “trickle-down, goofy, voodoo economics.”
But Rep. Ed Garner, R-Maumelle, called Arkansas an “island of taxation,” saying no surrounding state except Missouri has a capital-gains tax.
Garner’s House Bill 1002 would exempt from the state income tax all capital gains from the proceeds of a sale of Arkansas property acquired after July 1, 2011, and owned for at least one year. The bill defines “Arkansas property” as real estate, tangible property, and investments in a company with its primary headquarters in Arkansas.
“There is no other bill that I’m aware of that has a potential to create jobs in Arkansas, to attract new capital to Arkansas, so businesses don’t have to figure this tax in their overall rate of return in the boardroom when they are trying to decide where to locate,” Garner said.
HB1002 would reduce state revenue by a projected $44 million in fiscal 2013, according to the Department of Finance and Administration.
The other bills the committee recommended to the House were:
House Bill 1052 by Rep. Lane Jean, R-Magnolia, to reduce the state sales tax on energy used in manufacturing from 3.125 percent to 2.625 percent. The department estimates a revenue reduction of $4.2 million a year. It would take effect July 1.
House Bill 1056 by Rep. Uvalde Lindsey, D-Fayetteville, to exempt from the state income tax low-income taxpayers who are heads of households and have two or more dependents, taking effect for tax year 2011. The department estimates a revenue loss of $3.8 million a year.
Beebe on Saturday talked about the state’s good financial standing compared with other states that face significant cuts to education and other programs to balance their budgets.
But he warned that could change “if we don’t elect the right people.”
A video of Beebe’s speech was posted on the state Democratic Party’s website.
“Everybody loves tax cuts,” the governor said. “I love tax cuts like everybody else. I’ve got a record to prove it. But they’ve got to be measured. They can’t be trickle-down, goofy, voodoo economics.”
Beebe has said that his proposed one-half percentage point cut on the sales tax on groceries is the only one that fits in his proposed $4.59 billion general-revenue state budget for fiscal 2012. He’s said other cuts could harm higher-education institutions, prisons or public schools.
“We’ve got some Republican legislators who are honorable and know what they are doing, and they will do right, and they will vote right,” Beebe said. “They care. The problem is they’re surrounding by a lot of others who just got elected and they think they can just do whatever they want to, cut revenue and [think] ‘If people get hurt, so what. Somebody else will figure that out.’ That’s what we’ve got to combat. That’s who we’ve got to combat.”
Beebe said Arkansas’ relative success with its budget during the recession can be attributed in large part to members of the Legislature.
“But we’re in the midst right now, with discussions and negotiations and threats and counter threats, about action people want to take, particularly on the Republican side of [the Legislature]that potentially could impact our ability to either deliver services or keep this budget balanced,” Beebe said.
Beebe spokesman Matt DeCample said Tuesday that of the three bills, Beebe considers only HB1002, the capital-gains tax cut, to be “voodoo economics.”
“The other two he would support if we could afford them,” DeCample said. “And, of course, he’s already supported cuts to the manufacturers’ utility rates in previous sessions.”
The state Republican Party issued a statement Tuesday accusing Beebe of “partisanship and name-calling” and trying to “force his budget on the people of this state.”
GOP Executive Director Chase Dugger said, “According to the governor, if it’s not a Democrat idea, it’s ‘voodoo economics.’”
He said the 2.5 percent growth in Beebe’s proposed fiscal 2012 budget over fiscal 2011 could pay for tax cuts.
“Unfortunately, like President [Barack] Obama, Gov. Beebe believes government can invest our money better than the people can,” Dugger said.
The new Democratic Party state chairman, Will Bond, said the GOP claim was misleading.
“Democrats provided the largest tax cut in state history and want to continue it with another cut to the grocery tax,” Bond said.
“That’s a tax cut that helps everyone. But Republicans’ idea of tax cuts for ‘working people’ are only for those people making more than half-a-million-dollars a year while the rest of us wind up carrying a bigger percentage of the tax burden.
“Democrats believe every Arkansan should benefit from tax cuts, but Republicans are only interested in those earning more than a half-million dollars a year.”
Beebe told reporters Tuesday that he wasn’t sure whether he would veto the tax bills should they reach his desk. He said there would be a “real possibility” he would let them become law withouthis signature.
“If [legislators] want to do that, and they think that’s what the people want, I never say never, but, however, sometimes people aren’t going to realize what this really means unless you let them realize what it really means, so they better not be counting on me [to veto it],” Beebe said. “This is not an exercise for somebody just to vote to cut taxes and hope somebody else is going to fix it for them. Everybody’s got to be responsible.”
Randy Zook, president of the Arkansas State Chamber of Commerce, testif ied in favor of the capital-gains tax cut and the manufacturing salestax cut.
“Arkansasis out of step with our surrounding states,” Zook said. “Capital flows where it’s welcome and where it’s well treated. We need all the capital investment we can get to generate as many jobs as we can get.”
If the capital-gains cut doesn’t pass, Zook warned of “diminished investment, reduced employment opportunities for college graduates, money flowing out of the state.”
Assistant Revenue Commissioner John Theis warned that HB1002 might violate the U.S. Constitution because it only exempts from the income tax capital gains on Arkansas investments while gains on out-of-state investments remain taxable.
Garner, the bill’s sponsor, called that a “straw-man argument” because surrounding states with similar laws haven’t faced legal challenges.
Furthermore, Garner took issue with the state finance department’s estimate of revenue loss from the bill. Garner said it would be much less, about $13 million a year.
House Republican Leader John Burris of Harrison said the finance department hasn’t considered potential revenuegains from economic growth that could result from a capital-gains tax cut.
Rep. Stephen Meeks, R-Greenbrier, wanted to know whether the finance department had analyzed how the capital-gains tax savings for Arkansas taxpayers would help the economy.
Tim Leathers, the finance department’s deputy director, said his agency has not because “the same amount of money” would go into the economy whether spent “on schools or Medicaid by the state or spent by those people who receive it.”
Rich Huddleston, executive director of Arkansas Advocates for Children and Families, testified against the bill, saying that it would mostly help the rich. He said that 77 percent of the bill’s benefits would go to 1 percent of the population.
Information for this article was contributed by Sarah Wire of the Arkansas Democrat-Gazette.
Front Section, Pages 1 on 02/16/2011