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story.lead_photo.caption Gov. Asa Hutchinson rolls out his new tax plan Wednesday at the state Capitol. He said it would reduce revenue by about $25.6 million in fiscal 2020 and “is absorbable by our growth and the existing budget that we have presented.” - Photo by Mitchell PE Masilun

Gov. Asa Hutchinson on Wednesday announced his latest proposal to cut the state's top individual income tax rate from 6.9 percent to 5.9 percent.

This plan would be phased in over two years and reduce revenue by about $97 million a year after it's fully implemented. The latest proposal sharply lessens the impact on the budget. The previous version of the governor's tax cut would have cut revenue by $192 million.

The Republican governor said the "5.9 plan" would restructure the upper-income tax table with three rates instead of the current six rates and trim the top rate for the middle-income tax table.

Taxpayers with at least $38,200 in taxable income would receive a tax cut. No taxpayer would receive a tax increase, which some would have under the previous proposal.

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

The cut in this latest 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 current top rate of 6.9 percent applies to people with at least $79,300 a year in 2018 taxable income, said Scott Hardin, a spokesman for the finance department. Under the latest proposal, the 5.9 percent rate would apply to those making at least $80,500 a year.

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

"As you remember, I campaigned on lowering the tax rate to 5.9 percent over four years, and the estimated cost was $192 million [a year]," he said at a news conference in the governor's conference room, referring to his previous "2-4-5.9" income tax cut plan.

"Because of the incredible work of the legislative [tax overhaul] task force, their guidance on this, the fact we have been working on this with the legislative leadership over the past weeks and longer, we have come up with the '5.9 plan' that works better for the budget [and] allows us to get to the 5.9 percent in two years instead of four years," Hutchinson said.

About 578,983 taxpayers would get a tax reduction under the latest plan, including all of the approximately 218,108 taxpayers in the upper-income tax table, said Paul Gehring, an assistant revenue commissioner for the state Department of Finance and Administration.

There are about 1,587,612 taxpayers in the state, he said.

The Arkansas Tax Reform and Relief Legislative Task Force is led by co-chairmen Rep. Lane Jean, R-Magnolia, and Sen. Jim Hendren, R-Sulphur Springs. Hendren, the Senate president pro tempore, is Hutchinson's nephew.

Republican legislative leaders praised the latest revision.

"I think what we have here is a very manageable and measured tax cut that is going to provide significant relief and overall make Arkansas more competitive," said House Speaker Matthew Shepherd, R-El Dorado. Arkansas has the highest income tax rate compared with surrounding states.

"What you see is the first bill and really the most important bill of a process that will result in several other bills reforming our tax code and making us more competitive," Hendren said. "I think you will see [the tax proposal] move through the Senate next week."

Senate Revenue and Taxation Committee Chairman Jonathan Dismang, R-Searcy, introduced the plan, which is in Senate Bill 211, Wednesday afternoon. House Revenue and Taxation Committee chairman Joe Jett, R-Success, is the bill's House sponsor. Hendren and Shepherd are co-sponsors.

House Democratic leader Charles Blake of Little Rock said Democrats plan to propose an alternative proposal that would create a state earned income tax credit with a lesser impact on revenue. But similar legislation failed to clear the Legislature in recent years.

The governor's plan is too focused on high-income earners, while also posing too great a hit to state funding for services, he said.

"We're still concerned as a caucus that this is not the smart tax relief that Arkansans need," Blake said.

HUTCHINSON'S PITCH

Hutchinson said Arkansas has to compete with surrounding states for industry and capital and to retain talent.

Dropping the top rate from 6.9 percent to 5.9 percent will allow the state to be competitive, he said.

He said his 5.9 plan wouldn't reduce revenue as much as the previous version because "on the upper bracket, we reduced the benefit to the higher-income earners.

"The rate goes down, but some of the incremental brackets are not reduced and so that saved us on cost. It gets us to 5.9 percent quicker, and it achieves the goal of flattening that rate," he said.

The latest plan also doesn't reduce the number of individual income tax tables from three to one nor does it increase the standard deduction for married and single taxpayers as his previous plan did.

"When we increased the standard deduction [in the 2-4-5.9 plan], that cost a significant amount of money and that was why that number was much higher, like $190 million," said Larry Walther, director of the finance department.

According to the governor's office, a three-fourths vote would be required for approval of his "5.9 plan" in the 100-member House and 35-member Senate because certain rates in the upper-income tax table would be increased.

In calculating a person's income tax, the state applies different rates to different parts of the person's income.

In the current upper-income tax table for people who make more than $80,500 a year, the state levies:

• A 0.9 percent rate for income between zero and $4,599.

• 2.5 percent on income between $4,600 and $9,099.

• 3.5 percent on income between $9,100 and $13,699.

• 4.5 percent on income between $13,700 and $22,499.

• 6 percent on income between $22,500 and $37,699.

• 6.9 percent on income of $37,700 and above.

In the latest proposal, the rates for that same level of income would be:

• 2 percent on income between zero and $4,000.

• 4 percent on income between $4,000 and $8,000.

• 5.9 percent rate on income above $8,000.

Shepherd said seeking votes of 75 representatives will be more challenging than trying to round up a simple majority.

The House has 76 Republicans and 24 Democrats. The Senate has 26 Republicans and nine Democrats.

"This proposal kind of finds a sweet spot there as far as providing tax relief, but in a fashion that even those that maybe have some concern [about it], I think we are going to be able to build that support," the speaker said. "I am very optimistic we'll be able to get this done."

BUDGET IMPACT

Hutchinson said his plan is projected to reduce revenue by about $25.6 million in fiscal 2020 and it's in line with his proposed general revenue budget and reserve funds needs.

"It is absorbable by our growth and the existing budget that we have presented," Hutchinson said.

In 2015 and 2017, the Legislature enacted Hutchinson's previous plans to reduce individual income-tax rates for people with up to $75,000 a year in taxable income. The plans are collectively projected to reduce revenue by $150 million a year.

"What we are doing today in the '5.9 plan' gives us the final phase of the three-part program to lower taxes in Arkansas and already we have provided tax relief for 90 percent of Arkansans," Hutchinson said.

The cut in individual income rates for people with less than $21,000 a year in taxable income became effective Jan. 1 of this year and is projected to reduce revenue by about $50 million a year.

The sales tax on groceries was reduced from 1.5 percent to 0.125 effective Jan. 1 of this year under a 2013 state law. It is projected to reduce revenue by $61 million a year, Hutchinson noted.

In February 2017, the governor announced that he wanted the General Assembly in 2019 to cut the state's top individual income rate to 6 percent. State officials projected that would reduce revenue by about $180 million a year.

Then in August, Hutchinson changed his income tax plan to what he called "2-4-5.9 plan" because of the rates that ultimately would be levied 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.

That version also would have increased the standard deduction from $2,200 to $6,800 for single taxpayers and from $4,400 to $13,600 for married taxpayers. But a snag emerged earlier this month after state officials concluded that roughly 200,000 taxpayers would pay more than $30 million in additional income taxes under that second proposal.

Hutchinson said the plan announced Wednesday "was just a compromise that was reached that made sense."

A Section on 01/31/2019

CORRECTION: The governor’s income tax cut plan includes a middle income tax bracket for individuals who make from $22,500 to $80,500 a year. In that bracket, a 5.9 percent income tax rate, rather than the current 6 percent, would be applied to the portion of income that is at least $37,500 a year. An article Thursday about the proposal omitted the specifics of its effect on the middle income tax bracket.

Print Headline: Arkansas governor announces new plan to cut income tax rate

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Comments

  • RBear
    January 31, 2019 at 4:26 a.m.

    This, at a time when the state is struggling to find funds for highway improvement and other infrastructure needs. The economic benefit from this will not be that significant and the funds could help Arkansas remain competitive when it comes to providing a better environment to do business in. Companies look more at the investment in the state than anything else. Let's see how many jobs this really attracts over the course of the cut.

  • wolfman
    January 31, 2019 at 4:26 a.m.

    What gives? They are cutting taxes but wanting to impose a gas tax to pay for highways. The repubs are totally crazy.

  • Waitjustaminute
    January 31, 2019 at 6:20 a.m.

    An article earlier this week explained that the legislature doesn't fund highways from general revenue, an approach that goes back decades. A bill has been introduced that would slowly transfer limited general funds to highways once revenues reach a certain point, but it probably won't pass.
    I've never liked gas taxes, but there's a certain logic to them: those who use the roads pay for their upkeep, including out of state drivers. I don't want my income taxes paying for the big trucks tearing up I-30 and 40 on their way from Dallas to Memphis.

  • RBear
    January 31, 2019 at 7:04 a.m.

    WJAM the bill to transfer general revenues was introduced which shows that lawmakers are struggling with how to fund highway expansion. Having seen these moves in the past in other legislatures, namely here in AR and in TX, it's more about testing the waters to see if they can figure out creative ways to shuffle the funds.
    ...
    With regards to gas taxes, those have proven to be inadequate to fund highway construction thanks to fuel efficiencies in vehicles. In other words, the ratio of construction per mile driven is greater. Taxing long-haul drivers more creates issues of interstate commerce. It's not a simple solution, especially when you consider the bulk of need is really in other areas of the state.

  • Waitjustaminute
    January 31, 2019 at 7:21 a.m.

    I'm not talking about taxing long-haul drivers; I'm talking about a gas tax that everyone pays equally (per gallon). And yes, there are lots of other needs in the state, which is why we don't want prisons, higher education, etc., competing against the highway interests for general revenue.

  • Bullgod1984
    January 31, 2019 at 7:51 a.m.

    The tax savings proposed fund the general revenue fund. General revenue funds aren't used for highway funding RBEAR.

  • theaverageman
    January 31, 2019 at 8:03 a.m.

    What a lot of people don't know is that the ROAD-user revenue, which receives at least a billion dollars, is not going to roads it's going to non-highway stuff. Over 60 percent of the people were in favor of diverting road user revenues but Asa turned a blind eye as usual. What I can't wrap my head around is how is our governor going to say that he's for lowering taxes but increase taxes for highways when in the past it's been proven ineffective for funding highways. The half cent sales tax itself is a sham because majority of the money is going towards making I-30 10 plus lanes (that majority of little rock residents didn't want) when it was supposed to go toward four lane highways not five or multi-lane highways. Now Asa is talking about making the half-cent sales tax permanent and a lot of people who voted for it should be outraged at ARDOT because they bamboozled the voters and should be ashamed of themselves. They always crying they have no money for this or that but I don't see them backing off of the dirty crossing boondoggle that they claimed it was the most expensive project they ever done, but yet couldn't do the north belt freeway which is badly needed the same way when they used money as an excuse for not getting it built. We need a Texan to take over this state because it least we can move forward and get things done instead of the chicken sh*ts we got working at ARDOT.

  • RBear
    January 31, 2019 at 8:05 a.m.

    BG try to keep up with the conversation. I'll just ignore you until you get caught up.
    ...
    WJAM says, "I'm talking about a gas tax that everyone pays equally (per gallon)." Go back and read my comment on gas taxes and why they are a challenge these days funding road infrastructure.

  • ZeebronZ
    January 31, 2019 at 8:23 a.m.

    And the rich take care of the rich, right? As usual.

  • GOHOGS19
    January 31, 2019 at 8:52 a.m.

    zeebronz what is your definition of rich? anyone who makes more than you? silly

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