The state's sales tax exemptions for agricultural and manufacturing inputs and the state income tax exemption for Texarkana are justified, Gov. Asa Hutchinson said Friday.
"They are in my judgment worthy of continuation because they are supported by a rational basis, and it helps move our economy forward," the Republican governor said in the state Capitol during an event sponsored by the Americans for Prosperity group.
On April 25, the Arkansas Tax Reform and Relief Legislative Task Force plans to review more than 40 sales tax exemptions. The items range from the partial sales tax exemption for groceries to various exemptions for agriculture, manufacturing and motor fuels. These exemptions collectively reduce state revenue by about $1.3 billion a year.
The task force was created under 2017 laws to placate some lawmakers who want additional individual income tax cuts. Under state law, the task force is required to issue a report to the Legislature and Hutchinson by Sept. 1.
Two months ago, Hutchinson told lawmakers that he wants the 2019 Legislature to cut the state's top individual income tax rate from 6.9 percent to 6 percent, which he projected would reduce revenue by about $180 million a year. The Legislature cut other income taxes in years past.
Hutchinson and the task force, appointed by legislative leaders, have drawn criticism from Hutchinson's Republican opponent, Jan Morgan of Hot Springs.
"That commission is talking about all kinds of exemptions to be repealed," Morgan told the Benton Gun Club earlier this week. "It is talking about repealing the exemptions for farmers on their farm equipment."
Hutchinson said Friday that the task force is on the right path.
"They are saying let's put on the table all the exemptions, the exceptions to fairness, and let's see if they are justified in today's economy and, with the sense of fairness, we should have," he said at the Americans for Prosperity event.
Hutchinson said he could give out a list of tax exemptions that he believes should remain because they are justified based on the state's economy, including exemptions for inputs for manufacturing and agriculture, as well as Texarkana's unique income tax exemption.
When told about what Hutchinson said regarding the Texarkana exemption, Sen. Jimmy Hickey, R-Texarkana, said, "Bless his heart. ... It is really life or death for Texarkana." Residents of Texarkana, Ark., are exempt from paying income tax to provide economic development parity with Texarkana, Texas; the neighboring state has no income tax.
Morgan told the Benton Gun Club earlier this week, "Our governor will tell you in campaign mode that he has decreased taxes, but he has actually shuffled around and increased taxes."
Hutchinson said Friday that the Legislature in 2015 and 2017 enacted his plans to cut individual income rates for Arkansans with taxable incomes up to $75,000 a year. The cuts are projected to reduce revenue by about $150 million a year.
"Now that is not offset. There was not any taxes raised. It was not a shell game," he said.
Hutchinson said the 2017 Legislature enacted his plan to exempt military retirement benefits from the state income tax to attract retirees. That law also cut the excise tax on soft-drink syrup, but increased the 1.5 percent sales tax on candy and soft drinks to 6.5 percent, levied income taxes on unemployment insurance and imposed a sales tax on certain digital products.
He said his plan to cut the top income tax rate will make the state more competitive with surrounding states, but it won't be easy to do.
Afterward, Hutchinson told reporters that he doesn't have a plan to alter the reduced sale tax on groceries. It is 1.5 percent and will drop to 0.125 percent on Jan. 1 under a 2013 state law.
"I historically have been supportive of the elimination of the sales tax on groceries, and I don't want to put a heavier burden on our lower-income citizens," he said. "If the task force comes up with some recommendations that protect the lower-income citizens, but adjust that someway, I am open to looking at it."
Metro on 04/14/2018