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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

  • Waitjustaminute
    January 31, 2019 at 9:03 a.m.

    RBear, I understand you can't fund all highway repair/construction solely with a gas tax. But an increase in the gas tax equals an increase in gas tax revenue, and that would help the situation, even if it wouldn't solve it entirely.
    And fuel efficiency is only part of the equation. While fuel efficiency is rising, so are the number of average miles driven per driver.

  • GeneralMac
    January 31, 2019 at 9:38 a.m.

    Is Arkansas top rate income tax too high?

    YES !

    If Saturday night's PowerBall is won by an Arkansan here in Arkansas, he will pay $3,465,000 ..MORE..state income tax than if a Missouri resident wins in Missouri.

  • Knuckleball1
    January 31, 2019 at 10:10 a.m.

    The Possum Grinning Governor like the Trumpster is only worried about him and his buddies, he doesn't care about the average Arkansan. I think you will see more and more of this over the next 4 years as Arkansas gets more like Kansas. If he keeps cutting soon the only thing left to cut is State Employees and some agencies are working at the bare minimum now. Long time employees are leaving because of the Supervision put in place by Asa, the people they are hiring can't do the job.

  • JakeTidmore
    January 31, 2019 at 10:25 a.m.

    So PvtSchmuck doesn't care that the average working Joe in Arkansas gets diddly squat when it comes to tax breaks but he just loves the rich folks getting richer at our expense.
    --
    Gone are plans to increase the standard deduction for all taxpayers. Gone are simplifications of tax tables that potentially produced some savings for lower- and middle-income taxpayers.
    ....we know that Hutchinson's original tax cut plan gave two-thirds of the benefits to the top 5 percent (those making more than $200,000) and simple arithmetic says that percentage will likely hold on the new plan, perhaps be even more tilted toward the super-rich.

    So, again: how do you cut the cost of a tax cut in revenue from $192 million to $97 million a year and still give a windfall to the superrich? Easy, take away tax cuts for the poor and the middle class.
    --
    MIght education, workforce, infrastructure, aesthetic amenities, rigorous environmental protection and laws that reflect open arms to diverse people matter more than a 5.9 percent income tax rate for billionaires?

    Or perhaps they prefer a state where some legislators' first idea after voters approve an increase in the minimum wage is to introduce legislation to take the pay raise away. And cut Medicaid for the working poor while they're at it.
    --
    And then some stupid SOB wants us to feel sorry for the rich folks! Boo hoo hoo. What a horrible life they have to lead in Arkansas. Boo hoo hoo. I feel so sorry for them....NOT!

  • GeneralMac
    January 31, 2019 at 10:35 a.m.

    JAKETIDMORE........many "average working Joes" in Arkansas end up getting a bigger REFUND than the total amount of taxes they paid in.

  • arky12
    January 31, 2019 at 10:41 a.m.

    The problem I see with this is that they are lamenting on how to fund highways and other things that are underfunded so it makes no sense to cut the income to the State when they say they come up short on major funding. While I realize that it's a top priority for Republicans to cut taxes in lieu of responsible funding choices, it's definitely not "fiscally conservative". Comparing our state income tax rates to other states is a dumb idea because their economics is far different from ours. Same with sales taxes, which of course they don't bring up the fact that the only reason sales taxes are so high is that Republicans swore an oath to a lobbyist, Grover Norquist to NEVER RAISE TAXES. Just the thought drives them nuts. Can't even bring themselves to raise the darned gas gas a few pennies to fund highways. They could do it and no one would even notice instead they spend money on needless voting which a very small percentage of people even show up to vote, to increase sales taxes which impact the poorest the most. Time for Republicans to be truly fiscally responsible and adjust the taxes not for political points but to be fair to ALL income brackets.

  • GeneralMac
    January 31, 2019 at 10:51 a.m.

    ARKY......."fair" is to have every Arkansan pay the SAME RATE.

    If you earn twice what I earn, you will pay 2x more taxes than me.
    If you earn 1/2 of what I earn, you will pay 1/2 the tax I pay.

  • GeneralMac
    January 31, 2019 at 11:13 a.m.

    To those complaining about semi trucks........yes they are harder on the road than a Prius.

    However, they will burn about 7x the fuel and thus pay more taxes travelling the same distance.

  • GeneralMac
    January 31, 2019 at 11:14 a.m.

    at least we don't have a steep sales tax like our neighbors do-------SARC

  • Illinoisroy
    January 31, 2019 at 11:56 a.m.

    Cut taxes thereby starving government of revenues and then attack government for not being able to meet fiduciary responsibilities, claiming that private sector can do it more efficiently. Status quo Republican dogma.

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