With state lawmakers split about how deeply to cut taxes, Gov. Asa Hutchinson on Tuesday called on them to support the creation of a blue-ribbon legislative task force to recommend a comprehensive plan to reduce Arkansas' individual income tax rates.
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In this year's regular session, the Republican governor also wants the GOP-controlled Legislature to enact his proposal to cut rates for Arkansans with taxable incomes below $21,000, which state officials said would reduce general revenue by $25 million in fiscal 2019 and $50 million a year thereafter. He also wants lawmakers to enact his proposal to no longer levy state income taxes on military retirement benefits, part of a larger, $19 million-a-year plan to cut two taxes and modify three tax exemptions.
Two years ago, the Legislature enacted Hutchinson's proposal to cut rates for Arkansans with taxable income between $21,000 and $75,000. State officials projected that would reduce general revenue by about $100 million in the current fiscal 2017, which started July 1.
"Now, I know some of you say, 'Well, this is not enough, and we need to have a more comprehensive tax reform package,'" Hutchinson told lawmakers during his State of the State address on the second day of the 91st General Assembly's regular session.
"I agree with you. We need a specific plan for the future so the public knows the direction we are heading and how we can get there. My goal from the beginning has been to reduce the overall high income tax rate in Arkansas and do it for all Arkansans," the governor said.
The goals of the legislative task force will be "fairness, competition, simplification and economic growth," Hutchinson said.
"We need to have a plan to reduce the tax rate over time to a more competitive level. Let's create that task force, and I ask [for] your support," he said in his 17-minute speech.
Some lawmakers are reluctant to commit to supporting Hutchinson's proposed income tax cut because of lagging sales tax collections in this fiscal year, while other lawmakers are pressing for an income tax cut of more than $100 million a year that also would reduce rates on income exceeding $75,000 a year.
Senate Revenue and Taxation Committee Chairman Jake Files, R-Fort Smith, said he thinks the state can afford Hutchinson's $50 million-a-year income tax cut.
"I still want to get a little more comfortable with the numbers before we just jump off the cliff and hope all is well," he said.
Sen. Bruce Maloch, D-Magnolia, said he generally supports the governor's tax-cut plans.
"I would like to have the luxury of seeing a couple months of revenue before I decided whether to do a tax cut at all," he said. "I don't think we are going to have that luxury. I think he is going to ask the committee to consider that during the early part of the session."
Senate Republican leader Jim Hendren of Sulphur Springs said he'll sponsor Hutchinson's $50 million-a-year tax-cut proposal in the Senate and that he plans to ask the Senate tax committee to advance it within the coming two weeks. He said his bill also would create the legislative task force and that he's working on the details.
In the House, Republican leader Mathew Pitsch of Fort Smith will sponsor the legislation, Hutchinson spokesman J.R. Davis said. Pitsch said he hopes to ask the House tax committee to advance his bill soon.
Sen. Jane English, R-North Little Rock, and Rep. Charlene Fite, R-Van Buren, will sponsor bills that would, among other things, eliminate income taxes on military retirement benefits, Davis said.
Senate President Pro Tempore Jonathan Dismang, R-Searcy, said he talked with Hutchinson a few weeks ago about creating a task force.
There is a lot of merit to creating the task force "mainly because the ideas that were being floated around right now [for additional income tax cuts] are relatively new," he said. "Members had waited until just prior to the session to start talking about their major sweeping overhaul changes they want to make in the tax code. This will allow it to be debated and heard and figured out and probably a better long-term plan put in place."
Sen. Bart Hester, R-Cave Springs, and Rep. Charlie Collins, R-Fayetteville, who have both called for an individual income tax cut of more than $100 million in this year's regular session, said they don't plan to introduce such legislation.
"I think everything in government is a compromise and trying to find an agreement forward, so I am very optimistic about the task force," Hester said. "I hope to be appointed to it and I hope we use the next couple of years to really look at the best way to overhaul our tax system in Arkansas ... to make it simplified but competitive, where I don't think we would have to use as much money like paying companies to come to Arkansas. We just create an environment that draws them here.
"I think if I back off right now, I can get more than I wanted next time around," Hester said.
Collins said, "I am extraordinarily excited that this task force will ensure that we put a more competitive tax program in place than we have today and that we're going to have the kind of tax cuts that are going to help turn Arkansas into a good jobs magnet."
The proposal to exempt military retirement benefits from state income taxes is projected to reduce general revenue by $13 million a year.
It's part of a larger $19 million-a-year proposal to reduce some taxes but increase revenue by changing others. The larger plan would reduce the tax on soft-drink syrup but raise the sales tax rate on candy and soft drinks. It also would apply the sales tax on the full cost of "manufactured housing" and require unemployment-benefits recipients to pay income taxes on that compensation.
Files said he told "the manufactured housing people [on Monday] that I asked the governor's staff to try to find other ways to facilitate that change.
"Having said that, I am supporter of the bill. Whatever comes before me, I plan on voting for. But I still think that we have a duty to try to find ways to cut spending as opposed to cut that exemption," he said.
Rep. Laurie Rushing, R-Hot Springs, who is a Realtor, said the plan to eliminate income taxes on military retirement benefits in part by ending the manufactured-housing exemption would amount to a tax increase for Arkansans living in mobile homes.
Rep. Michelle Gray, R-Melbourne, said she had similar concerns because her district has a "high portion" of such housing.
Davis said the governor's proposal "is the best option," after the governor reviewed numerous options for a tight general-revenue budget for fiscal 2018. Hutchinson has proposed a $5.48 billion general-revenue budget for that fiscal year, a $153 million increase over fiscal 2017 with most of the increased money going to the state Department of Human Services.
"We have not seen any other alternatives from legislators who say, 'Don't do this,'" Davis said.
Sen. Joyce Elliott, D-Little Rock, said she hoped Hutchinson would pledge more help for the poor.
"I think the governor could be a great deal more aspirational when it comes to his tax suggestions and moving that further down to folks who are really struggling. I was hoping that he would have an earned income tax [credit] increase," she said.
"We will be pushing him to include that, because I think it is necessary. If you really want to help people do better and get the dollars back into the community to have cumulative effect, that is one of the best ways in the world to do it. I didn't hear that, and I'm disappointed by that," Elliott said.
Information for this article was contributed by Brian Fanney and John Moritz of the Arkansas Democrat-Gazette.
A Section on 01/11/2017