The Legislature's tax overhaul task force on Tuesday voted to send three plans to cut individual income taxes to a consultant for its review.
The Tax Reform and Relief Task Force also decided to study various options to raise tobacco and alcohol taxes to help pay for more tax cuts, and options to change the state's fuel taxes to raise money for highways.
The task force has been reviewing various aspects of the state's entire tax code since May 2017.
It was created under a state law enacted in 2017 to placate some lawmakers who favor individual income tax cuts beyond those enacted in 2015 and 2017 projected to reduce revenue by a combined $150 million a year. The task force is required to make recommendations by Sept. 1 to the General Assembly and state lawmakers in preparation for the 2019 regular session.
In February, Republican Gov. Asa Hutchinson said he wants to cut the top individual income tax rate from 6.9 percent to 6 percent, which he projects will reduce revenue by about $180 million a year.
The task force on Tuesday voted to send the governor's proposal as well as two other plans to its consultant, Regional Economic Models Inc., for what a task force co-chairman, Sen. Jim Hendren, R-Sulphur Springs, called "dynamic scoring" to assess the proposals.
The task force also gave Hendren and the other co-chairman, Rep. Lane Jean, R-Magnolia, authority to submit other proposals to the consultant for review.
One of the two other plans -- called Option A -- would reduce the number of individual income tax tables from three to one to simplify the rates and tax brackets. Option A also would reduce the top rate from 6.9 percent to 6 percent for people with taxable incomes of at least $80,000 a year.
The state Department of Finance and Administration estimates this proposal would reduce revenue by $276 million a year. That projection includes the upcoming effect of a tax cut passed in 2017. That cut, taking effect Jan. 1, 2019, will reduce revenue by $50 million a year by cutting rates for people with taxable incomes below $21,000.
The other plan -- called Option B -- also would reduce the number of individual income tax tables from three to one. Option B would reduce the top individual income tax rate from 6.9 percent to 6.5 percent for people with taxable income of at least $80,000 a year.
Option B also would repeal the tax cut enacted in 2017 for people with less than $21,000 in taxable income.
The finance department estimated that this plan would reduce revenue by $125 million a year.
Because Option B would result in an income tax increase for people making less than $21,000 a year, it would require an emergency clause and a three-fourths vote of the 100-member House of Representatives and 35-member Senate, according to the Bureau of Legislative Research.
Hendren said afterward that the consultant will be asked to review Option B with the added feature of creating a state earned income tax credit of 10 percent of the federal earned income credit for low-income people.
During Tuesday's meeting, Hendren said a survey of task force members, in which they prioritized what they want in a $200 million tax cut package, shows "it's clear we have a lot of interest in Option A, the top rate reduction, and the throwback, single sales tax factor" referring to possible changes in the corporate income tax base.
"There is not quite as much support for, but there is significant support for corporate [income] tax rate reduction and Option B," he said.
Hendren also expressed frustration that finance department officials increased their projections for the revenue impacts of both options.
"We got a little bit of a bombshell last night. We found out that the estimates were off by like $80 million," Hendren said. "I think it makes that point of assessing these tax changes over four or five tables is challenging work and probably why it is going to be essential for us to have some of these things scored by our consultant."
Joel DiPippa, senior counsel at the finance department, said the department increased its projections because "it reflects something that our income tax section found when they were preparing that breakdown by family type, by tax bracket information, and they realized that there was a clerical error and did not include an entire type or class of returns that amounted to approximately an $80 million difference in that fiscal impact for both."
The task force also voted to study proposals to create an excise tax on e-cigarettes, to raise the excise tax on cigarettes, convert alcohol taxes to a percentage of a purchase price, raise the excise tax on wine and beer and increase the excise tax on tobacco and alcohol.
One proposal would raise the cigarette tax by 15 cents to $1.30 a pack to raise a projected $26 million a year, and the other proposal would raise the cigarette tax by 50 cents to $1.65 a pack to raise a projected $77 million a year.
The 16-member panel also voted to study indexing fuel taxes to factors such as consumer price index, fuel efficiency and economic growth and highway construction costs; creating an indexed sales tax rate on fuels that changes based on highway construction costs; and creating a road user fee for owners of electric and hybrid vehicles paid when the vehicle is registered.
Metro on 06/27/2018
Print Headline: Tax-cut panel sends 3 plans to consultant; Group looks at raising levies on alcohol, cigarette packs