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Conservative-leaning and liberal-leaning groups on Thursday disagreed about which tax cuts totaling about $200 million should receive a higher priority by a legislative task force.

The Legislative Tax Reform and Relief Task Force is legally required to make recommendations by Sept. 1 about possible changes to the state's tax code to the General Assembly and Gov. Asa Hutchinson. The task force has been reviewing the state's entire tax code since May 2017. The governor has said he wants the state to cut the top individual income tax rate; the cut would reduce revenue by an estimated $180 million a year.

A task force co-chairman, Sen. Jim Hendren, R-Sulphur Springs, said he wants each member, on a two-page sheet, to prioritize their choices for a $200 million tax cut package.

"I want to make clear that this does not mean that we're simply going to cut $200 million in taxes this year, next year or any year," he said. "It just says if we do, where would your priorities be? It may be in one year. It may be over a two-year or three-year period or maybe more or less."

Lawmakers can mull over the advice they received Thursday about choices to make.

Nicole Kaeding, director of special projects for the conservative-leaning Tax Foundation in Washington, D.C., told the task force that Arkansas should place emphasis on lowering the cost of capital to encourage economic growth.

Arkansas is failing behind by standing still because Georgia, Iowa, Missouri and Kentucky have recently enacted comprehensive tax overhauls, she said.

Kaeding said she would cut the top individual income tax rate to 6.5 percent and change income tax brackets. Her second priority would be changing corporate income taxes by increasing the five-year carry-forward period for net operating losses, repealing the so-called throwback rule for multistate business income and changing the apportionment formula for taxing multistate business income.

She said she also would repeal the corporate franchise tax and property tax on business inventory and then use tax triggers to phase in further reducing the top individual income rate to 5.9 percent and the top corporate income tax rate from 6.5 percent to 5.9 percent. She said her recommendations would reduce revenue by about $375 million a year and could be phased in.

But Lisa Christensen Gee, senior policy analysis of the liberal-leaning Institute on Taxation & Economic Policy in Washington, D.C., said most academic research shows that business tax cuts don't have a major impact on state economic performance.

State governments need adequate tax revenue to invest in their people and infrastructure, she said. She also said they need to prepare for looming federal budget cuts and the next economic downturn. States should avoid using tax triggers to phase in tax cuts and instead take fiscal and political responsibility for the consequences, she said.

Gee said Arkansas could provide $200 million a year in tax relief to low-income citizens by creating a refundable state earned income tax credit equal to 25 percent of the federal income tax credit or target low-income and middle-class people by doubling the standard deduction and creating a refundable state earned income tax credit equal to 15 percent of the federal earned income tax credit. Low-income people pay a larger share of their income in taxes than high-income people do, she said.

If Arkansas insists on cutting the top individual income tax rate, it could moderate that cut by eliminating the exclusion for certain capital gains from state income taxes and provide a refundable income tax credit for low-income taxpayers, she said.

Randy Zook, president of the Arkansas State Chamber of Commerce, told the task force that "we think that [Kaeding's] recommendations are spot on and absolutely right."

Zook defended the state's exclusion of certain capital gains from state income taxes.

"I know that only a small number of people under our current rules pay a capital gains tax , but it is a different group of people every year," he said. He said the state had "gotten away" from the days when a person who did well moved to Texas or Florida to escape the capital gains tax.

Metro on 06/22/2018

Print Headline: Panel on tax cuts hears competing voices from D.C.

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