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Governor to seek income-tax cuts

He says he will work with legislators on plan for ’17 session by Michael R. Wickline | June 4, 2016 at 2:37 a.m.

HOT SPRINGS -- Gov. Asa Hutchinson said Friday that he plans to propose individual income-tax cuts for the Arkansas General Assembly to consider in the 2017 regular session.

The Republican governor said he would work with lawmakers during the next several months to determine how much in tax cuts that the state can afford and how the tax cuts would be applied.

In this year's fiscal legislative session, the General Assembly and Hutchinson enacted a budget that would distribute $5.33 billion in state general revenue in fiscal 2017 -- up from $5.19 billion in fiscal 2016 -- with most of the general-revenue increase of $142.7 million targeted for the Department of Human Services and public schools.

The general-revenue budget factors in nearly $101 million in individual income-tax cuts enacted by the 2015 Legislature and Hutchinson.

"As you look at our budget numbers, we are absorbing the $100 million tax cut that we did the last [regular] session," Hutchinson told reporters after speaking before about 75 people attending the County Judges Association of Arkansas' annual spring meeting at the Hot Springs Convention Center.

"It is unclear as to what we will be able to do, but without any question there will be a new round of tax cuts on the agenda," he said. "But I will work with the Legislature to define that."

Hutchinson also spoke Wednesday to the Fort Smith Rotary Club about his intention to propose more tax cuts.

"I simply sent a signal in Fort Smith that I'm not done yet. There is a lot more work to do and we'll be careful about it. We are not going to jeopardize the state budget or our services, but we have a growing economy and we have got some more work to do," Hutchinson said.

In January, Hutchinson said he ultimately wants to cut the state's top income-tax rate of 6.9 percent to 5 percent, and "it is going to take a while to get there."

In the 2015 regular session, the Republican-controlled Legislature enacted Hutchinson's plan to reduce the income-tax rate from 6 percent to 5 percent for Arkansans earning between $21,000 and $35,000 a year and from 7 percent to 6 percent on incomes between $35,100 and $75,000.

At that time, state officials said the cuts would apply to about 485,000 tax returns benefiting 597,000 taxpayers starting in the 2016 tax season. They said taxpayers making $75,000 per year will save $540 per year, and a taxpayer earning about $35,000 per year will save $140 per year.

Hutchinson told the County Judges Association that he met with a chief executive officer of a company considering locating "a huge investment opportunity" in Arkansas.

"They said we are comparing with five different states to invest in Arkansas and you have got some advantages, but the disadvantage is your income-tax rate because it is higher than any other state around," the governor said. "I want to continue to be able to edge that down."

Hutchinson also said he would like Congress to set up a fair mechanism for states to collect sales taxes on Internet sales.

"At the state level, I am committed to having a lockbox for any additional revenues that might be generated in that way to further reduce our income-tax rate in Arkansas," Hutchinson said. "That makes it easier to pass it at the federal level knowing that states are not going to be using it not just to grow government."

A study conducted by University of Tennessee professors estimated that in 2012 Arkansas lost about $113.9 million in state and local sales-and-use taxes from untaxed electronic commerce, including about $79.7 million in state sales-and-use tax and $34.2 million in local sales-and-use taxes, said Tom Atchley, administrator of the Arkansas Department of Finance and Administration's Office of Excise Tax Administration.

State Rep. Charlie Collins, R-Fayetteville, said in an interview he would like to phase in a cut in the state's top individual income-tax rate of 6.9 percent and make it 6 percent because "that [higher rate] sticks out as sore thumb" compared with surrounding states. He said the state could afford an income-tax-rate decrease phased in over four years, eventually reducing tax revenue by roughly $120 million a year by the fourth year, based on increased tax revenue from economic growth and slower growth in state expenses, including Medicaid expenses.

House Revenue and Taxation Committee Chairman Joe Jett, D-Success, questioned in an interview how the state is going to be able to pay for additional individual income tax cuts beyond growth in state tax revenue.

"We'll have to see a few months of collections before we start to get too far down that road," House Speaker Jeremy Gillam, R-Judsonia, said an interview.

Senate Revenue and Taxation Committee Chairman Jake Files, R-Fort Smith, said, "We have been aggressive in cutting the income tax and I still would like to see taxes cut more, but cut responsibly at the same time.

"We need to look at continuing to lower the tax burden on the middle class and we need to find a way to implement the Earned Income Tax Credit (EITC) to incentivize lower income residents to work. I will be working with the governor and his team to help formulate plans and continue to reduce the tax burden on Arkansans and encourage job creators to locate here," Files said in a written statement.

Hutchinson thanked the county judges for supporting his proposed highway funding legislation, enacted by the Legislature in a special session last month, and his Arkansas Works version of Medicaid expansion that provides private health insurance for low-income Arkansans. Arkansas Works was enacted in a special session in April and funded during the subsequent fiscal session.

The highway funding plan relies largely on the state devoting 25 percent of future surpluses and increased treasury investment earnings to raise about $50 million a year in state highway funds to secure $200 million a year in federal highway funds available through the new federal highway law in the next five years. It doesn't raise taxes.

"I have full confidence it is going to work," Hutchinson said. "It has the steady flow of funding at the right level for our Highway Department."

Metro on 06/04/2016

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