Republican gubernatorial candidate Asa Hutchinson on Tuesday proposed state income-tax cuts that he estimated would cut state tax revenue by about $100 million a year.
During his first year as governor in 2015, Hutchinson said he would ask the Legislature to cut the state’s income-tax rate from 7 percent to 6 percent for people earning between $34,000 and $75,000, and from 6 percent to 5 percent on those earning between $20,400 and $34,000.
On the basis of tax returns for tax year 2011, Hutchinson’s proposal would grant tax cuts to about 500,000 Arkansans, he said. He said the proposal will save a taxpayer earning about $50,000 a year about $300 per year.
Hutchinson of Rogers, a former 3rd District congressman, said his goal as governor would be to gradually reduce the state’s income-tax rates for all Arkansans, starting with the middle class, to create more jobs. Arkansas’ individual income-tax rate of 7 percent is higher than the rates in surrounding states, he said.
“My passion for this campaign is job creation, and this is one of the factors that limits our ability to create jobs in Arkansas, and it is hurtful or unfair to our citizens to have a noncompetitive state income-tax rate,” he said at a news conference at his Little Rock campaign headquarters.
Hutchinson said his estimate that his proposal would cut state tax revenue by about $100 million is based on 2011 state Department of Finance and Administration figures that state Rep. Charlie Collins, R-Fayetteville, obtained. Collins is chairman of the House Revenue and Taxation Committee and a Republican candidate for lieutenant governor.
“This is paid for out of growth and surplus money,” Hutchinson said. “We will maintain our commitment to fund education.”
Hutchinson said his proposal wouldn’t result in cuts in state government spending and wouldn’t foreclose increased spending on education and for other programs.
The state’s surplus in fiscal 2013 was $299 million, “but we still have sufficient [money] to apply $100 million in surplus money for this tax reduction,” he said.
The state’s unobligated surplus funds totaled $114 million as of Nov. 1, said Brandon Sharp, the state’s budget administrator.
Hutchinson said the state’s average annual rate of growth has been more than 2 percent and that’s “more than sufficient to cover this tax reduction into the future.”
Afterward, Tim Leathers, deputy director of the state Department of Finance and Administration, said the department initially estimated Hutchinson’s proposed tax cut would reduce state tax revenues by about $148 million a year on the basis of information provided by the news media.
After Hutchinson’s campaign objected to the department’s estimate, Leathers said the department needs more information from Hutchinson’s campaign to recalculate its estimate, which he said will be less than $148 million a year.
Hutchinson campaign manager Jon Gilmore said later that Hutchinson’s campaign has provided details in a spreadsheet to allow the department to develop an estimate.
Gilmore said, “The misunderstanding on the cost computation is based on the fact that Asa’s plan does not cut taxes for persons making over $75,000, even on income they make between $20,000 and $75,000.”
At his news conference, Hutchinson said the state can gradually reduce income tax rates on higher income people as the economy grows and surpluses increase.
Democratic gubernatorial candidate Mike Ross of Little Rock has maintained that he would implement state income tax cuts that target working families who need it the most, according to a spokesman for the state’s former 4th District congressman.
“We are pleased to see Asa Hutchinson has come around to Mike Ross’s position,” said Ross spokesman Brad Howard.
Last month, Ross proposed gradually cutting the state’s sales tax on partial replacement and repair of machinery used in manufacturing - a tax cut that he estimated would cut tax revenues by about $40 million a year. Hutchinson has said he favors across the board tax cuts rather than targeted tax cuts.
Republican gubernatorial candidate Curtis Coleman said Hutchinson’s tax cut proposal isn’t bold enough.
“Cutting personal state income taxes will help - and most importantly provide much needed relief to most hard-working Arkansans - but in order to create a pro-jobs, business-friendly economic environment right here in Arkansas, it is crucial that we also reduce our corporate tax rates and eliminate our capital gains tax,” said Coleman, a Little Rock businessman.
Republican gubernatorial candidate Debra Hobbs of Rogers, a state representative, said she disagrees with Hutchinson’s proposal.
Instead, she said she favors reducing the number of income tax brackets, reducing each bracket by the same percent and increasing the income threshold for each bracket.
“I think we all need a tax break,” she said.
Two weeks ago, term-limited Democratic Gov. Mike Beebe warned that the Republican-controlled state Legislature will have to either repeal tax cuts that it enacted earlier this year or trim state government budgets if it doesn’t reauthorize the use of federal Medicaid dollars to purchase private health insurance for poor Arkansans next year.
Beebe said the 2013 Legislature enacted tax cuts - projected to reduce tax revenue by $10 million in the current fiscal year, by about $85 million in fiscal 2015 and by $160 million in fiscal 2016 - in anticipation of savings resulting from the use of federal Medicaid dollars to purchase private health insurance for low-income Arkansans.
As for Beebe’s contention that the funding of the “private option” will save the state money and allows the state to afford these tax cuts, Hutchinson said, “We will see what the facts are down the road.
“What we are proposing here certainly should not be dependent on that debate [on whether to reauthorize funding for the private option], but there is some impact on that,” he said.
Hutchinson said it’s premature to say whether the 2014 Legislature should reauthorize funding for the private option.
In May, he said he would have signed legislation authorizing the use of federal Medicaid dollars to obtain private health insurance for about 250,000 uninsured Arkansans. At that time, he also said he would have called a special session of the Legislature devoted entirely to the issue, if he was governor, and tried to shape the bill “so it might have been a different bill that came to me.”
Coleman and Hobbs oppose the private option, while Ross supports it.
Front Section, Pages 1 on 11/13/2013