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story.lead_photo.caption Senate President Pro Tempore Jim Hendren, surrounded by Democratic and Republican lawmakers Thursday at the state Capitol, presents details of his tax-cut plan for low- and moderate-income families. More photos are available at arkansasonline.com/315genassembly/. - Photo by Mitchell PE Masilun

Senate President Pro Tempore Jim Hendren on Thursday announced a bipartisan proposal to grant about $100 million a year in tax cuts for low- to moderate-income families and to pay for the cuts by levying a privilege tax on e-cigarettes and a special excise tax on cigarettes.

Hendren, a Republican from Sulphur Springs, introduced Senate Bill 571 with 16 co-sponsors in the 35-member Senate. Rep. Lee Johnson, R-Greenwood, is the House sponsor of the bill, which has 39 co-sponsors in the 100-member House of Representatives.

The legislation will require a majority vote for approval in both chambers, Hendren said.

"We are going to give it our best try," Hendren said at a news conference in the state Capitol. He was surrounded by about 15 Democratic and Republican lawmakers. "We are not kidding ourselves that this is going to be an easy lift."

He said he hopes to present the bill in the Senate Revenue and Taxation Committee next week and is optimistic about its chances of clearing the Senate.

"The House is more of a challenge because of the way they are structured and the way things go through different committees. But I think we have a good chance," Hendren said.

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

Gov. Asa Hutchinson, who is Hendren's uncle, said in a written statement, "I appreciate the effort by Sen. Hendren and the sponsors for seeking additional ways to provide tax relief to those with lower incomes, as we did in 2017 with the low-income tax cut of $50 million.

"It is important that any additional tax relief be offset on the revenue side, which this bill seems to accomplish through a new tax on tobacco and related products. However, I will continue to study this bill and its revenue impact as it moves through the legislative process," the Republican governor said.

"I do not expect him to oppose it," Hendren said.

He filed his bill two days after Hutchinson signed a bill to raise about $95 million a year more for the state Department of Transportation for highways by imposing a wholesale tax on gas and diesel fuel, increasing fees for electric and hybrid vehicles, and tapping casino tax revenue or other funds.

In February, Hutchinson signed legislation that would slice the state's top individual income tax rate from 6.9 percent to 5.9 percent over a two-year period. State officials projected that cut will reduce revenue by $97 million a year after it's fully implemented.

House Speaker Matthew Shepherd, R-El Dorado, said he wants to study Hendren's bill more closely before taking a position on it.

But he said there's a legitimate argument to be made that e-cigarettes should be taxed differently because there's not "parity" between those products and traditional tobacco products.

"I want to look at it closer," Shepherd told reporters. "Anytime you're talking about a tax increase, that's something that -- in terms of how I view things -- that just causes me to take an even closer look at it."

He said there is still plenty of time remaining in the legislative session for a bill to work its way through the legislative process as long as there's consensus behind it.

At his news conference, Hendren said the bill would:

• Create a state refundable earned income tax credit equal to at least 5 percent of the federal earned income tax credit and save low-income families about $40 million a year. The credit could be adjusted depending on the economy's impact on revenue.

• Increase the standard deduction from $2,000 to $3,300 to save taxpayers about $41.3 million.

• Eliminate the 2 percent rate bracket in the tax table for people with incomes up to $22,200 a year. The rate is now applied to incomes from $4,500 to $8,900 a year. This cut would save those taxpayers about $16.8 million a year.

Arkansas has a regressive tax code with high sales and income taxes compared with other states and both of those factors weigh more heavily on low-income than high- and medium-income families, said Hendren, who co-chaired the Legislature's tax overhaul task force that met for about 18 months in 2017 and 2018.

"So the purpose of this legislation today is to begin to adjust some of that," he said.

Rich Huddleston, executive director of Arkansas Advocates for Children and Families, said in a release that he was thrilled with the earned income tax credit proposal.

"More than 300,000 Arkansans and their families stand to benefit from the tax credit, helping them pay for things like regular checkups at the doctor or being able to pay rent on time. A poll we released in April 2018 found that 79 percent of Arkansans, including 79 percent of independents and 72 percent of Republicans, support enacting a state-level earned income tax credit," Huddleston said.

Hendren said Arkansas taxpayers pay about $795 million a year in health care costs related to smoking and tobacco, but sales tax revenue from tobacco amounts to about $230 million a year.

"So people who choose not to smoke are paying a tremendous bill in taxes for those who [do smoke] from the bottom of the scale to the top of the scale," he said. "This is particularly unfair to low-income families who must pay higher taxes because tobacco is not carrying a fair share of the burden they place on taxpayers.

"The use of e-cigarettes and vaping is exploding in our state. Every forum I have been to, superintendents and principals bring up the fact that vaping is becoming a real problem in our state, and it is not taxed at all like tobacco is," Hendren said. "This has the potential to eventually lead to massive additional health care costs in Arkansas."

The legislation would levy a 20 percent special excise tax at the retail level on cigarettes.

"This equates to about 80 cents a pack, and this will put us very similar in line to the taxes that are on cigarettes currently in the state of Oklahoma," he said.

The state's current tobacco tax is $1.15 per cigarette pack.

Oklahoma was one of three states and the District of Columbia that increased tobacco taxes last year, according to the National Conference of State Legislatures. Oklahoma raised the tax rate on cigarettes by $1, raising the rate to $2.03 per pack, effective last July, and adjusted the tax on little cigars.

Kentucky also raised the cigarette and tobacco tax rate from 60 cents per pack to $1.10, while the District of Columbia increased the cigarette tax rate from $2.94 to $4.94 per pack of 20 cigarettes, the conference reported. New Jersey also enacted a 10-cent per fluid milliliter tax on liquid nicotine for e-cigarettes.

Hendren said the bill also would make e-cigarettes and vaping products subject to the same taxes as traditional tobacco products, and that will equate to about a 67 percent tax on vaping products.

"While we are still waiting on firm fiscal impacts, it is estimated that these two new taxes will bring in approximately $100 million, which will be used to make up the revenue reduction for the tax cuts that we just talked about," he said.

Sen. Will Bond, D-Little Rock, said he has focused on vaping and e-cigarettes in part based on his own experience with his teenage daughter and son.

"We just know it is an epidemic and something that we need to address immediately instead of waiting and waiting and waiting," he said at the news conference.

Sen. Jason Rapert, R-Conway, said he supports Hendren's legislation in part because it is good tax policy.

"I am hoping this policy and maybe other policies in the future will lead the state of Arkansas to make sure that public health is pre-eminent because it is costing taxpayers, it is costing families and it is killing individuals," he said at the news conference.

Rep. Johnnie Rye, R-Trumann, said, "This is one great package.

"I think this is sealing the deal for this General Assembly. We took care of the roads. We took care of the income tax, and I have had a lot of folks that have called me, they are working-class people who said, 'What have you done for us?' There it is."

But Senate Revenue and Taxation Committee Chairman Jonathan Dismang, R-Searcy, said in an interview that "we are at the part of the session that we don't need more items that are controversial, and this is obviously a controversial issue.

"We met for two years with the tax task force, and this was not part of the recommendation. In fact, it conflicts with a number of the recommendations of our task force," he said. "I do not intend to vote for" SB571.

Officials for the Altria Group and R.J. Reynolds Tobacco Co. didn't respond to this newspaper's requests for comment.

Information for this article was contributed by Hunter Field of the Arkansas Democrat-Gazette.

Gallery: Arkansas General Assembly Day 60

A Section on 03/15/2019

Print Headline: Bill aims to cut taxes on low, mid-incomes in state, add levy on e-cigarettes

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Comments

  • RBear
    March 15, 2019 at 6:16 a.m.

    This seems like a good idea by providing tax relief to the lower income families of Arkansas through a tax on a luxury item. In the case of cigarettes, it could also bring some health benefits for those who would be ready to quit the habit and a financial incentive being the tipping point. But I agree with Dismang. This session has already full of controversial issues and this may not make it through the gauntlet of the Lege.

  • BoudinMan
    March 15, 2019 at 7:48 a.m.

    "...this will not be an easy lift." Hendren. Nothing easy for the repugs when it comes to giving the middle class or the poor some economic relief. Sad.

  • Skeptic1
    March 15, 2019 at 8:21 a.m.

    Finally a republican that has his constituents as his priority instead of the top 1% like Asa. The rich do not need tax cuts, the working poor and the middle class do.

  • Retirednwsman
    March 15, 2019 at 9:10 a.m.

    My question is, if this passes, and Arkies do cut back on smoking and vaping, then where does the money come from to pay for this tax cut? I don't have a problem with tax cuts, but there have been so many passed, and the next thingwe'll be doing is trying to fight a deficit.

  • GOHOGS19
    March 15, 2019 at 9:45 a.m.

    Skeptic1 - pay attention - lower income taxpayers were given breaks in the last two sessions. Geez.

  • Packman
    March 15, 2019 at 11:04 a.m.

    Tax cuts for wage earners. Nice. Very nice.

  • GeneralMac
    March 15, 2019 at 12:01 p.m.

    " cut taxes on LOW income"

    Isn't that an oxymoron because 0 (tax paid )x any number( tax cut) still equals 0

  • seitan
    March 15, 2019 at 3:03 p.m.

    We should tax obesity.

  • SeanJohn
    March 15, 2019 at 4:40 p.m.

    Isn’t it usually those at the lower spectrum of income that smoke the most?

  • NoUserName
    March 15, 2019 at 6:01 p.m.

    Mac - "Isn't that an oxymoron because 0 (tax paid )x any number( tax cut) still equals 0"
    .
    Depends on your definition of taxes, I guess. In Arkansas, approximately 50% +/- of state revenue comes from sales taxes.

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