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story.lead_photo.caption State Senate members Bill Sample (from left), Johnny Rye and Jimmy Hickey huddle Wednesday during a meeting of the legislative tax overhaul task force. The meeting was the final one for the task force. ( John Sykes Jr.)

The top preference of the Legislature's tax-overhaul task force is to implement Gov. Asa Hutchinson's plan to reduce the state's top individual tax rate in three years instead of the four years he proposed, the group decided Wednesday.

The Republican governor's tax-cut plan -- which also reduces the number of individual income-tax tables from three to one -- is projected by state officials to reduce tax revenue by nearly $192 million a year, when fully implemented.

Wednesday was the final meeting of the task force, which had been getting together since the spring of 2017.

State officials call Hutchinson's proposal the "2-4-5.9" plan because of the rates that ultimately would be charged at different income levels. People with taxable income up to $8,000 would pay a 2 percent rate; those with between $8,001 and $18,000 in taxable income would pay 4 percent; and those making $18,001 and up would pay 5.9 percent. The current top rate is 6.9 percent.

The task force's second preference is for the Legislature to implement the governor's income-tax cut plan within two years, said a task force co-chairman, Sen. Jim Hendren, R-Sulphur Springs.

The third preference is the task force's so-called Option A plan. It too would reduce the number of tax tables from three to one. It would cut the top individual rate from 6.9 percent to 6.5 percent within three years, Hendren said.

He announced the order of preference for these three plans after task force members ranked their choices in writing and submitted them to legislative staff members, who tallied the scores.

State officials project the Option A plan would eventually reduce revenue by $264.8 million a year. The plan, because it would not raise taxes, would require only a majority vote in the 100-member House and 35-member Senate for approval.

The governor's proposal, however, would require the votes of at least 75 representatives and at least 27 senators because it would increase income taxes for some filers, state officials have said. But they also have said the increased taxes would be offset by increasing the standard deduction for single taxpayers from $2,200 to $6,800 and for married taxpayers from $4,400 to $13,600.

The House will be comprised of 76 Republicans and 24 Democrats and the Senate will be made up of 26 Republicans and nine Democrats in the regular session starting Jan. 14.

Any tax cut that passes would be the third since Hutchinson took office.

In 2015 and 2017, the Legislature has enacted Hutchinson's plans to cut taxes for people with up to $75,000 a year in income. Those plans enacted in 2015 and 2017 are projected by state officials to collectively reduce revenue by about $150 million a year when they are fully implemented.

3-YEAR PROPOSAL

A three-year phase-in of the governor's plan would cut the top rate from 6.9 percent to 6.5 percent in tax year 2020; to 6.2 percent in tax year 2021; and then to 5.9 percent in tax year 2022, said Paul Gehring, an assistant revenue commissioner.

The four-year proposal would have cut the rate to 6.5 percent in tax year 2020; to 6.3 percent in tax year 2021; to 6.1 percent in tax year 2022; and then to 5.9 percent in tax year 2023.

A three-year phase-in would reduce revenue by $47.4 million in fiscal 2020; $71.8 million in fiscal 2021, $48.5 million in fiscal 2022 and then $24.1 million in fiscal 2023, Gehring said in documents provided to the task force.

Afterward, Hendren said the task force preferred a three-year phase-in because "I think that everybody was a little bit surprised when you looked at the net effect" of roughly $50 million a year in increased tax collections from some changes in the state individual tax code to conform to the federal income-tax code and in increased Internet sales taxes collections.

"It is going to continue to keep pressure on us to keep spending under control, but the amazing thing is, and I think the reason people like the governor's approach, with the standard deduction increase, is it does allow us to get that top rate down under 6 percent in just three years, which is going to make Arkansas much more competitive," said Hendren, whose uncle is Hutchinson.

Among Arkansas' neighboring states, Texas and Tennessee don't levy individual income taxes.

With a three-year phase-in, Gehring presented projections showing increased net general revenue -- money potentially available to state agencies -- of $126.5 million in fiscal 2020, $144.6 million in fiscal 2021, $167.7 million in fiscal 2022 and then $195.2 million in fiscal 2023.

But Sen. Keith Ingram, D-West Memphis, said his top preference is to implement the plan in four years.

"I am worried about the economy. I have been in business long enough to know that times can change very drastically in a short period of time and I think we are seeing some signs of the economy maybe softening a bit," he said. He said he is worried about the potential negative impact of some of President Donald Trump's policies in the next two years.

"A lot of people in here were very aware of what has happened in Kansas, in Oklahoma and in Louisiana and they don't want to see it happen to the state," Ingram said, referring to budget shortfalls in those states.

Rep. Joe Jett, R-Success, said his top preference is to implement Option A over a three-year period in part because it would require only a majority vote.

"But, that being said, I like the governor's plan," he said.

Jett, who is chairman of the House Revenue and Taxation Committee, said he would like to think the governor would get a three-fourths vote to enact his own tax-cut plan, but "it is going to be portrayed as raising taxes to cut taxes and all that."

With Sen. Larry Teague, D-Nashville, dissenting, the task force voted to add a proposal that gradually extends to 20 years the five-year carry-forward period for corporations' net operating losses. Corporations can use the losses against income earned in the future. This proposal initially was included in a package of proposed future corporate-tax cuts that would be implemented if tax collections exceed certain amounts once the individual income tax plan is fully implemented.

The "task force has really done a great job in analyzing the possibilities and I am very open to the three-year timetable," Hutchinson said afterward.

"We all want to get this tax lowered as quickly as possible, and they have actually suggested some other means of achieving that goal, so I want [the state Department of Finance and Administration] to analyze the cost impact of this and see how we can make the adjustments to achieve that goal. So we'll work very hard to look at the budget and see where we can make the adjustments to achieve that three-year time frame that they recommended," the governor said.

HOME OFFICE CREDIT

Hendren also announced that he reached agreement with many people in the health insurance industry on a plan to gradually cut the home-office tax credit granted to those companies against their insurance premium taxes.

In October, the task force learned that the tax credits cost the state more than $40 million a year.

A decades-old law allows for life, health and disability insurers to get home-office credits against their premium taxes. The credits are equal to the noncommissioned salaries and wages of the insurers' Arkansas employees who are paid in connection with their insurance operations.

For health and disability insurers, the home-office tax credits may not reduce their premium taxes by more than 80 percent, according to the Insurance Department. For life insurers, the credit may not reduce their premium taxes by more than 70 percent.

"We have one provider that is over $20 million in that credit, so if an $18 million cap is put in place in 2020, that would really be the only provider that is affected by that, and the amount of premium tax credit would drop from $43.4 million to $39.9 million" in 2020, Hendren said.

He said he wants to change the limit on the credit to 70 percent of a company's insurance premium taxes in 2021, "so this will affect everybody, and we are just talking about health insurance premiums." The limit would be changed to 60 percent of a health insurance company's premium taxes in 2022 and then to 50 percent in 2023, he said.

"At the end of year four, the amount of premium tax credit that the state would be issuing has dropped from $43.4 million to $27.1 million," he said. The proposal's $16.3 million a year in increased revenue could be used to cut other taxes.

ECONOMIC BREAKS

Ingram said he plans to propose legislation to create state breaks that mirror federal tax breaks for companies that move into 85 so-called Opportunity Zones. Hutchinson designated these economically distressed areas as allowed under the federal tax overhaul enacted by Congress last year.

State Revenue Commissioner Walter Anger said in a letter to the task force that Opportunity Zones are designed to spur economic development by providing tax benefits to investors.

Investors can defer tax on any previous gains invested in a qualified opportunity fund until the earlier of two dates -- the date on which the investment in the fund is sold or exchanged, or Dec. 31, 2026, he said.

If the investment in the fund is held for longer than five years, there is a 10 percent exclusion of the deferred gain, he said. If it is held for more than seven years, the exclusion of the deferred gain increases to 15 percent, he said.

"What my legislation would do is we'll just match the federal tax law," Ingram told the task force. "Realistically, it will be at least six years at the quickest before there could be any fiscal impact on our budget."

Photo by John Sykes Jr.
Sen. Larry Teague (right), D-Nashville, questions state finance officers as he and Sen. David Wallace, R-Leachville, take part in Wednesday’s meeting of the tax overhaul task force.

A Section on 12/13/2018

Print Headline: 3-year plan on tax cuts tops list for state task force

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Archived Comments

  • RBear
    December 13, 2018 at 11:21 a.m.

    Actually, inaccurate comments by skeptic and fake. Maybe with regards to neighboring states, but in some cases we're talking about .9% difference (MO and LA). I can't wait for fake to challenge me on the MO rate. With regards to skeptic's comment, there are many states with higher rates, some with thriving economies and low unemployment rates. Being one of the VERY few in here who actually lived in TX, there are many other taxes that compensate for the lack of an income tax. Also, most people who would actually move to TX would be moving to an urban area where the jobs are. The COL negates the tax benefit.
    ...
    The bottom line is people are NOT exiting the state because of the income tax rate. It's a line of BS from two of the least informed trolls in here.

  • jwheelii
    December 13, 2018 at 12:18 p.m.

    What are the inherently governmental and constitutional activities.
    What is the cost?
    What tax rate is required to pay that cost?

  • Knuckleball1
    December 13, 2018 at 12:44 p.m.

    There are a couple commenting here that are as always so out of touch it makes you wonder where they came from.
    Yes, Arkansas has a higher tax rate than some of the states around us, those states make up the difference in Car Tags, etc. Even with having to pay personal property taxes, car tags are a bargain here compared to some of our neighboring states.

    ..................................................

    Teachers need raises, schools need repairs, Highways are falling apart and cause thousands of dollars in damage to personal vehicles every year, bridges have been outdated and should have been replaced years ago and we want to cut taxes and let the state crumble into pieces,so that the rich can have a tax cut...

    ........................................

    Then they are also taking money out of programs that help the elderly and poor and they call themselves Christians.

  • Illinoisroy
    December 13, 2018 at 1:26 p.m.

    Not christians, capitalists!

  • jwheelii
    December 13, 2018 at 1:43 p.m.

    I'm trying to gain some perspective here. Would someone please give an income dollar amount above which an individual may be considered rich or wealthy?

  • Morebeer
    December 13, 2018 at 3:23 p.m.

    I can help you with some of your questions, jwheeli.
    All taxes are proportional. For example, the amount you pay in sales taxes is proportionate the amount of retail spending you do. Your property taxes are proportionate to the value of your property, and your income tax is proportionate to your income.
    There is nothing "inherent" in government. One nation may establish a national healthcare program, another may not. One may establish a large army, another, like Costa Rica, may opt to not have an army at all.
    Wealth is subjective. When I was in college, I had just gotten out of the U.S. Army. I had saved up about $5,000, I was collecting on the GI bill, and working as a bartender and fry cook evenings and weekends. I felt quite well off. Money goes farther in a rural state than in a coastal state, where housing can cost ten times as much. So someone might feel wealthy in a rural state despite making only half the income of someone in NYC or LA.
    Your questions on government efficiency suggest that you're unfamiliar with zero-based budgeting and sunset provisions for laws and agencies. Bone up on these topics, and they will answer some of your questions in this regard. Good luck, and keep asking questions about government. Posters like Rbear ad 23cal are good resources. Pay no attention to packman or mozarky, known in their GRU cubicles as russkypack and moscowslut.

  • GeneralMac
    December 13, 2018 at 4:04 p.m.

    Disregard comments from the "usual suspects".

    They echo John Brummett in believing making.....able bodied young people with no dependants....meet MINIMUM requirements to get free, tax payer paid insurance " cruel ".

    Thankfully they are in the MINORITY in the state of Arkansas.

  • Happy1234
    December 13, 2018 at 4:10 p.m.

    LEGALISE pot and tax it at fifteen percent.

  • GeneralMac
    December 13, 2018 at 4:30 p.m.

    At 11:21 RBear calls my income tax statements "inaccurate"

    A lie and he knows it.

    Maybe RBear should stick to things he knows about ( like leading "LGBT" "LGBT" at Texas Democrast convention )

  • jwheelii
    December 13, 2018 at 10:33 p.m.

    “All taxes are proportional.”

    I disagree. While property taxes are applied at a rate proportional to property value, the other two types of tax cited, relative to income, are not. Sales taxes are regarded as regressive, because they consume a larger percentage of income of the lesser earners as opposed to the higher earners. Our income taxes are progressive, as evidenced by the progressively higher rates exacted from increasing levels of income. While various forms of single rate proportional income taxes have been proposed, most include the progressive feature of personal exemption, thereby reducing the regressive impact on lesser earners.
    *
    “There is nothing "inherent" in government.”

    Inherent governmental functions are enumerated in establishing documents, whether federal, state, or local. These are the only activities that government MUST accomplish.
    *
    “Wealth is subjective.”

    How one feels about their own wealth is entirely subjective. But when others decide you are “wealthy”, for the purpose of exacting money from you, your feelings don’t matter, and the determinations are objective. And those rates are not based on locality cost of living.
    *
    “Your questions on government efficiency suggest that you're unfamiliar with zero-based budgeting and sunset provisions for laws and agencies.”

    Zero Based Budgeting is the process of creating a budget from nothing without using the prior year’s budget or spending numbers. No activities are assumed to be untouchable. All expenses are judged and must be justified in order to remain in the budget.

    My post at 9:13 AM uses ZBB processes as a route to better budgeting. I see little evidence of ZBB in our state operations.

    If more laws and regulations has sunset provisions, I suspect our regulatory burden and costs would be significantly reduced.

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