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story.lead_photo.caption Sen. Mark Johnson calls for a clincher vote Wednesday after senators approved the income tax measure. The bill now goes to the House for further consideration. - Photo by Mitchell PE Masilun

Legislation that would enact Gov. Asa Hutchinson's plan to slice the state's top individual income tax rate from 6.9 percent to 5.9 percent over a two-year period escaped the Arkansas Senate on Wednesday.

The Senate voted 28-5 to send Senate Bill 211 by Sen. Jonathan Dismang, R-Searcy, to the House for further consideration -- a day after the Senate's 25-5 vote fell two votes short of the 27 required for approval.

The Republican governor's proposal is projected by state officials to reduce state tax revenue by about $97 million a year after it's fully implemented.

SB211 requires a three-fourths vote to clear the 35-member Senate and 100-member House because it would increase rates on about 213,000 taxpayers in the upper-income tax table, although state officials say no one would pay more in income taxes under the bill.

The bill received votes from 25 Republicans and three Democrats Wednesday. Five Democrats voted against it. A Republican and a Democrat didn't vote.

[RELATED: Complete Democrat-Gazette coverage of the Arkansas Legislature]

Three senators who didn't vote Tuesday were for the bill Wednesday, helping the Republican governor move one of his top legislative priorities through the Senate. The three were Sens. Terry Rice, R-Waldron; Bruce Maloch, D-Magnolia; and Eddie Cheatham, D-Crossett.

"I am grateful for all the senators who supported the 5.9 tax cut plan and for the hard work displayed by Senate leadership to achieve today's successful vote," Hutchinson said in a written statement.

"This commonsense approach to tax policy received more than three-fourths of the vote in the Senate. It has broad, bipartisan support, and that certainly gives it plenty of momentum as it goes to the House for final consideration," Hutchinson said.

Asked what the governor agreed to do in return for the votes of Rice, Maloch and Cheatham, Hutchinson spokesman J.R. Davis wrote in a text message: "Nothing."

"My main concern was really infrastructure and I was convinced that that is going to come up pretty soon and that made me feel a little better," Cheatham said. He was referring to another priority of Hutchinson's -- getting some kind of highway funding proposal through.

Cheatham said the income tax bill was eventually going to clear the Senate anyway.

"I just felt like ... the longer we stay here on the floor it will just slow the process down, so that's basically why I decided to go ahead and vote to get it in the House and let them worry about it down there, and we'll work on transportation," Cheatham told reporters.

Cheatham said he didn't ask for anything in return to his vote. Maloch made a similar comment.

"I have certainly no commitments of anything other than just a good-faith interest in working on some of the issues that I am interested in, the [University of Arkansas] Division of [Agriculture funding] and some other issues," Maloch said.

"I knew from the beginning that I ultimately would vote for the bill," he told reporters. "I wasn't ready yesterday and we have already done a middle-class tax cut. We have already done a low-income tax cut and even this one that is for the upper income moved from a $190 million tax cut down to a $97 million tax cut, so that made it more palatable and so I just thought it was just time to move on and send it to the House, and I think they are going to have some issues down there. It may be tweaked down there."

Rice said he voted for the governor's income tax cut because "I have gotten some information that made me ready to vote."

He said he's been assured that talks are continuing about developing a plan to raise more money for highways.

"I wanted to come into session with a highway bill, but we don't have it. Hopefully, something is coming," Rice said.

Senate President Pro Tempore Jim Hendren said Wednesday that once Senate members “understood that there is a serious commitment to finding a solution to highways and it wasn’t just window dressing, they were prepared to move on and realize that moving past the tax cut debate allowed that discussion to happen more seriously.”
Senate President Pro Tempore Jim Hendren said Wednesday that once Senate members “understood that there is a serious commitment to finding a solution to highways and it wasn’t just window dressing, they were prepared to move on and realize that moving past the tax cut debate allowed that discussion to happen more seriously.”

Senate President Pro Tempore Jim Hendren, R-Sulphur Springs, said he has made a serious commitment to developing a highway plan, and so has the governor and House Speaker Matthew Shepherd, R-El Dorado.

"I think we needed to do a better job of communicating that to a few members," he said. "I think once members understood that there is a serious commitment to finding a solution to highways and it wasn't just window dressing, they were prepared to move on and realize that moving past the tax cut debate allowed that discussion to happen more seriously," he said.

Hutchinson has said he prefers referring a plan to raise more money for highways to voters. He also favors that plan including a permanent extension of a highway-funding-related half-cent sales tax that was approved by voters in 2012; the tax had a 10-year limit.

House Revenue and Taxation Committee Chairman Joe Jett, R-Success, who is the House sponsor of SB211, said his intention is to ask the committee to approve the income tax bill next Tuesday.

"We are in the process of counting the votes," he said, adding that getting a three-fourths vote for the bill will be "a heavy lift" in the House.

A majority of the House Republican caucus probably supports the income tax cut bill. But about a half dozen to a dozen members have legitimate concerns about the bill, Jett said, and the governor will have to try to address those concerns.

The House is made up of 76 Republicans and 24 Democrats.

House Democratic leader Charles Blake of Little Rock said he believes the governor's tax cut bill faces a difficult path through the House, where at least 21 of 24 Democrats are planning to vote against it.

"We're not pleased ... with the amount of the tax cut, and who's getting benefited and what services are being underfunded," he said.

Blake said House Democrats are still working on a plan the entire caucus can unite behind, which may come as a separate bill or an amendment to the governor's plan. They canceled a news conference set for Wednesday morning to unveil a plan to create an earned income tax credit.

SB211 cleared the Senate only a week after the governor unveiled the third version of his plan to cut the top individual income tax rate. He originally proposed cutting upper income taxes in February 2018.

The second version, unveiled in August, was projected by state officials to reduce revenue by nearly $192 million a year, after it was fully implemented. But a snag in that plan emerged about a month ago after state officials concluded that roughly 200,000 taxpayers would pay more than $30 million in additional income taxes, leading to this new plan.

If enacted, the bill would be the third cut in individual income tax rates since Hutchinson became governor in January 2015. The others reduced lower- and middle-income taxes.

SB211 would cut the top rate to 6.6 percent, effective Jan. 1, 2020, and then to 5.9 percent, effective Jan. 1, 2021.

The measure also would cut the number of rates in the upper-income tax table from six to four, effective Jan. 1, 2020, and from four to three, effective Jan. 1, 2021.

The current top rate of 6.9 percent applies to people with at least $79,300 a year in 2018 taxable income. The Department of Finance and Administration expects that figure to "move to approximately $80,500" when adjusted for inflation this fall, agency spokesman Scott Hardin said.

In the middle-income tax table -- for people who earn between $22,500 and $80,500 a year -- SB211 also would create a middle-income tax rate of 5.9 percent, rather than the current 6 percent, that would apply to the portion of income that is at least $37,500.

About 579,000 taxpayers would receive a tax cut under SB211, the state Department of Finance and Administration estimated.

Examples of the cuts in this plan would be $12 for a person with net taxable income of $50,000; $37, income of $75,000; $59, income of $80,501; $253, income of $100,000; $503, income of $125,000; and $753, income of $150,000, according to the governor's office.

The tax cut in this plan would be $1,750 for a person with net taxable income of $250,000; $4,250, income of $500,000; $6,750, income of $750,000; and $9,250, income of $1 million, after it's fully implemented, according to the finance department.

Assistant Revenue Commissioner Paul Gehring was asked by this newspaper to explain why no one would pay more in income taxes under the bill, despite the increased rates for about 213,000 taxpayers in the upper-income tax table.

In an email response, Gehring said that based upon the projected 2019 income tax tables, a taxpayer with net taxable income of $80,501 would pay in the upper table a total of $4,140 in tax.

"Under the governor's 5.9 plan, the same taxpayer would pay $4,081 in tax when the plan is fully phased-in to 5.9%, which is a tax cut of $59. Upper income taxpayers pay tax on the following rates in the upper table brackets (based upon projected 2019 tax tables)":

• For this part of salary, $0 to $4,599, 0.9 percent

• Then for the portion of the salary from $4,600 to $9,099, 2.5 percent

• The salary portion from $9,100 to $13,699, 3.5 percent

• The salary portion from $13,700 to $22,499, 4.5 percent

• The salary portion from $22,500 to $37,700, 6 percent

• And salary of $37,701 and above 6.9 percent

"When the upper income tax table is restructured in the governor's 5.9 plan, a taxpayer pays more tax in the lower brackets due to the rates being restructured to 2%, 4%, and 5.9%," Gehring wrote in his email.

"However, upper income taxpayers currently start paying at the 6% rate at $22,500 and the 6.9% rate at $37,701. The reduction to 5.9% on the taxpayer's net taxable income that is currently being taxed at 6% and 6.9% offsets the higher tax that would be collected in the new 2%, 4%, and 5.9% brackets and results in the taxpayer receiving an overall net tax reduction," he said.

SB211 would reduce revenue by $25.6 million in fiscal 2020, $48.5 million more in fiscal 2021, and $22.9 million more in fiscal 2022, the department said in its fiscal impact statement on the bill.

In 2015, the Legislature enacted Hutchinson's plan to cut individual income-tax rates for people with between $21,000 and $75,000 a year in taxable income. State officials projected that tax cut would reduce revenue by about $100 million a year.

In 2017, the Legislature approved Hutchinson's plan to cut the individual income-tax rates for people with up to $21,000 a year in taxable income. State officials forecast that tax cut would trim state tax revenue by $50 million a year. The tax cut took effect on Jan. 1 of this year.

Senate vote on SB211

This is the roll call on Senate Bill 211, which would reduce income taxes for those in the state’s upper income bracket and a portion of those in the middle income brackets. The bill passed 28-5. It needed 27 votes to pass in the 35-member Senate.The bill now goes to the House.

YEA (28)

Bob Ballinger, R-Hindsville Cecile Bledsoe, R-Rogers Ronald Caldwell, R-Wynne Eddie Cheatham, D-Crossett Alan Clark, R-Lonsdale John Cooper, R-Jonesboro Breanne Davis, R-Russellville Jonathan Dismang, R-Searcy Lance Eads, R-Springdale Jane English, R-North Little Rock

Scott Flippo, R-Bull Shoals Trent Garner, R-El Dorado Kim Hammer, R-Benton Jim Hendren, R-Sulphur Springs

Bart Hester, R-Cave Springs Jimmy Hickey Jr., R-Texarkana Ricky Hill, R-Cabot

Missy Irvin, R-Mountain View Blake Johnson, R-Corning Mark Johnson, R-Little Rock Bruce Maloch, D-Magnolia Mathew Pitsch, R-Fort Smith Jason Rapert, R-Conway Terry Rice, R-Waldron

Gary Stubblefield, R-Branch James Sturch, R-Batesville Larry Teague, D-Nashville David Wallace, R-Leachville

NAY (5)

Will Bond, D-Little Rock Linda Chesterfield, D-Little Rock Joyce Elliott, D-Little Rock Keith Ingram, D-West Memphis Greg Leding, D-Fayetteville

DID NOT VOTE (2)

Stephanie Flowers, D-Pine Bluff

Bill Sample, R-Hot Springs

A Section on 02/07/2019

Print Headline: Tax cut for top earners clears Arkansas Senate

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Comments

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  • JA40
    February 7, 2019 at 9:10 a.m.

    Our Governor and Legislature are sure taking care of us.....lowering the tax rate for the rich. Hope you who voted for the yes voters are happy. Thanks to the 5 Democratic Senators who voted no. You are DEFINATELY appreciated.

  • GeneralMac
    February 7, 2019 at 9:43 a.m.

    JA40....PowerBall Saturday night

    If an Arkansan wins, they would pay $4,092,000 ....MORE...state income tax than if a Missourian won it and paid Missouri State Income tax.

    Have those 5 Democrats explain that away.

  • JA40
    February 7, 2019 at 10:01 a.m.

    Gen, If a frog had wings, he wouldn't bump his ass.

  • DFuller
    February 7, 2019 at 10:14 a.m.

    Why wasn't this called a tax increase for bottom earners? It certainly appears that tax rates increased for everyone else, assuming the rates apply to all.

  • 2thepoint
    February 7, 2019 at 12:07 p.m.

    What voodo economics. Arkansans are too stupid to figure this out? Governor and republican state houses are betting you are. I will never vote for another republican in our state until we get them out! Our roads are seriously falling apart! So let’s reduce revenue. Idiots!

  • Bullgod1984
    February 7, 2019 at 12:27 p.m.

    2THEPOINT, general revenue funds, those raised by income taxes, aren't used for roads now. Cutting taxes has no effect on highway funding.

  • limb
    February 7, 2019 at 3:20 p.m.

    EYEHATEGOD time.

  • Waitjustaminute
    February 7, 2019 at 4:06 p.m.

    To be fair, there have already been two tax cuts passed in the past two legislative sessions. The first one cut taxes for those with under 21,000 in income, and the second cut taxes for those from 21,000 to 75,000.

  • JIMGAIL61788GMAILCOM
    February 10, 2019 at 11:14 a.m.

    Gen-Our legislature has power in ARKANSAS,not MISSOURI.there should be no comparison.Arkansas has been 48th-50th in almost every comparative category.this is the progressive Republican way.Do not strive for better.

  • NoCrossNoCrown
    February 12, 2019 at 8:17 p.m.

    Rob the poor and give to the super wealthy
    That's what you get when you have a ASSa for a Gov and plenty of flunkies to ride in his posse

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