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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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Archived Comments

  • PopMom
    January 31, 2019 at 5:14 p.m.

    Packman,

    Now, I get into enough trouble making these kinds of comments as it is so I am not going to name names, but life is pretty good for certain purveyors of bonds, owners of construction companies, lawyers etc. I don't even know who gets the sweetheart contracts as I don't practice in Little Rock any more, but there are many people who live on the government teat who do not have lowly government jobs. I remember when Clinton was governor there seemed to be somewhat of a correlation between campaign donations and government contracts. This goes on at every level of government. Now, I am not suggesting that these people need to pay more than 6.9% in state taxes, I am just saying that they are not hurting so badly as to need a decrease to 5.9%. The people at the low end probably need better schools than the people at the high end need the extra money. Now, I am no Ocasia-Cortez sort of liberal, and I am having to fight the socialists here in Maryland. Montgomery County, Maryland is home to many nice country clubs with beautiful golf courses. Some of the leftists want to end the tax rate for country club property and increase it to the amount that would be paid if the club were a single family home. A 4,000 square foot home on a tiny lot pays about $12,000 a year in property taxes alone. You can imagine what a country club would have to pay on golf course acreage. Every country club in the county would go under after one tax cycle, and the land would be sold to develop condos. Goodbye green spaces in the County. Also, many of the wealthy would flee to Howard County, MD or the northern suburbs of Virginia. Of course, the proposal makes no sense as golf course don't require much in the way of fire, police etc, and golf course don't have children to educate. But the young Bernie/Warren/Ocasio-Cortez crowd are out in full force thinking of ways to stick it to those they perceive as wealthy. These advocates for change don't even stop to contemplate that our county has among the highest property taxes in the country so we can afford to have the finest schools and that many of the beneficiaries of these schools are the poor who live in the eastern part of the county. It's a divided and hateful country we have now. The rich want to pay nothing, and the leftists want to take everything. We need moderation!

  • UoABarefootPhdFICYMCA
    January 31, 2019 at 5:25 p.m.

    the banks + The rich = Government
    education = profit/prophet
    divided hateful country
    check.

  • LRCrookAtty
    January 31, 2019 at 5:46 p.m.

    People just do not understand taxes. First off, tax cuts only work if you actually pay taxes. When you get more back than you pay in, you have no skin in the game and cannot discuss whether a tax cut is good or not. I have never really understood the concept of Federal Income tax, because it does not matter how much they collect. They create the budget without ever considering what is coming in. From now on, when they make the budge, they can only spend what is expected to come in. When they run out, no more can be spent. Start with the necessities (what the Constitution says) and then start giving money away for all the other unnecessary programs until the pot is empty. You cannot spend what you don't have.

  • UoABarefootPhdFICYMCA
    January 31, 2019 at 6:03 p.m.

    We all have skin in the game.
    I'm no lawyer though...
    😂😂😂👌🦔
    Arkansas needs a wall for the great divide.
    It's about a century and a half overdue.
    WALL! WE WANT A WALL!
    😂😂😂😂🤣🤣🤣🤣

  • NoUserName
    January 31, 2019 at 6:15 p.m.

    Pack - "Gotta love middle class tax cuts!"
    .
    What middle class tax cuts? Few have actually filed so the s**t hasn't hit the fan, yet. Mine went UP. Guess I must be that one out of 3 billion projected to have their taxes increased with this 'cut.'

  • OCT
    January 31, 2019 at 6:24 p.m.

    ...this sounds alright to me, although far from ideal....having moved here from Florida years ago, state taxes are far to high for conditions of roads and schools. They need to attract business and promote tourism, and take less from the working class. If they aren't properly spending the funds collected then less funds need to be appropriated.

  • limb
    January 31, 2019 at 7:28 p.m.

    PM is right on the money about who is getting paid back.
    I do disagree about dems being “socialist.” If you (very) honestly do understand or participate in the companies and occupations you speak of, you know the handouts they get, the very little taxes they’ve paid and the passive means to become very very rich by this system.

  • JakeTidmore
    January 31, 2019 at 7:51 p.m.

    Analysis:
    Almost 70 percent of the tax cut goes to people making more than $456,000 a year. Based on the most recent tax tables available to me (from 2016), that's a tiny number of people. That year, 4,739 of 1.17 million tax filers made more than $500,000. Let's go crazy and estimate 1,000 in 2018 made more than $456,000. That still means less than one percent of taxpayers will reap 70 percent of the $68 million benefits, an average of more than $6,000 each. But take heart: If you make $50,000 a year you'll save 40 cents a week in income taxes.

    Another 20 percent, or roughly $19 million, goes to taxpayers in the $250,00 to $456,000 range. In 2016, that would have been roughly 12,000 taxpayers, the top 1 percent.

    In sum, then, the very richest get 90 percent of the benefits.

  • Packman
    January 31, 2019 at 9:08 p.m.

    JakeTidmore is either dumb as a sack of rocks or the most obtuse person on the planet. When 50% or so of people pay no taxes, it is impossible to cut from zero. When 2% of the people pay over 50% of the taxes any tax cut will be proportionate to what is being paid. Make no mistake, Tidmore and his fellow socialists want everyone else’s money due to their own failures. Make no mistake.
    .
    Hey PopSonb - So, you have no work to show and are talking out your a$$. C’mon, Pop, do better.

  • joebub61yahoocom
    January 31, 2019 at 10:19 p.m.

    I’ll take the tax cut. Last year I didn’t receive my tax refund from state. Called them. They said I owed. I informed I didn’t and I had received a check a week earlier for a few dollars different than my return. She informed me that I had overpaid and I needed to return that check. When I asked if it would make them happy if I sent them a check every week if that would make everyone happy. Well she responded with a good laugh. Yeah, I’m getting a refund this year.

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