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Governor delays call for session on tax cut plan

Need time to work out details with top lawmakers, he says by Michael R. Wickline | October 20, 2021 at 7:02 a.m.
This May 29, 2015, file photo shows the Arkansas state Capitol building in Little Rock, Ark. (AP Photo/Danny Johnston, File)

Gov. Asa Hutchinson has decided against calling a special legislative session to start Monday to consider income tax cuts, saying Tuesday that "we need more time" to finalize the details with legislative leaders and make sure that the package has sufficient support among lawmakers.

In addition, the Republican governor said, "There is some other issues that have been brought up and it gives more time to analyze that, and hopefully we'll have some [U.S.] Supreme Court guidance in the coming weeks that might shed some light on other items that members have mentioned might want to be discussed during that special session."

Hutchinson was referring to abortion-related lawsuits and to legislation patterned after the nation's most restrictive abortion law, enacted in Texas.

On Oct. 8, the governor said he tentatively planned to call the special session starting Monday.

On Tuesday, when asked whether he expects to call the special session before Thanksgiving, Hutchinson said, "I am not going to put a time frame on it.

"I certainly would hope that," he said at his weekly news conference in the governor's conference room at the state Capitol. "We would like to give as much time as possible for employers, but also taxpayers and tax preparers as they look at next year, but there is not a specific time frame on that. It all depends upon getting it drafted right and getting ... a majority to agree to it, and it has to be acceptable to me."

The governor outlined an income tax package that state officials project would eventually reduce general revenue by $321.3 million in fiscal 2024 after it is fully implemented. Among other things, the proposal would phase in a reduction in the state's top individual income tax rate from 5.9% to 5.3% by Jan. 1, 2023.

"Certain elements of this are still in discussion, and we want to be able to get the facts out so that the public can participate in this conversation," Hutchinson said. "I think this is a good tax reduction plan and, most importantly, it can be paid for out of recurring revenue and not one-time money."

The state Department of Finance and Administration on Tuesday increased its forecast for net general revenue in fiscal 2022 by $246.2 million, to $6.11 billion, and also increased its forecast for net general revenue in fiscal 2023 by $298.5 million, to $6.45 billion.

Earlier this year, the Republican-dominated General Assembly and Hutchinson enacted a general-revenue budget for fiscal 2022 totaling $5.849 billion, including a $17.1 million allocation to a restricted reserve fund. That budget projected a surplus of $17 million.

There is a broad agreement with legislative leaders that the elements of the income tax cut plan outlined Tuesday ought to be part of the package considered in the special session, Hutchinson said.

"We are trying to look at how the legislation can be drafted and, of course, I rely upon the legislative leadership to do this," he said.

CUTTING TO 5.3%

The plan, which would be fully implemented in fiscal 2024, would:

• Consolidate the state's low- and middle-income tax tables.

The state now has three tables, each giving the tax rates for different levels of net income: one for low-income taxpayers making less than $22,900; a second for middle-income individuals netting $22,900 to $82,000; and a third for those making more than $82,000.

State officials project that this part of the plan would reduce general revenue by $132.7 million in fiscal 2024.

• Cut the top individual income tax rate from 5.9% to 5.5% on Jan. 1, 2022, and then to 5.3% on Jan. 1, 2023.

The top rate would apply to the net taxable income between $39,000 and $82,000 for taxpayers in the proposed consolidated income tax table and to the net taxable income above $8,300 for those in the high-income table. State officials project this part of the plan would reduce state general revenue by $164.4 million in fiscal 2024.

• Make adjustments for smoothing the tax cliff between tax tables. State officials project this part of the plan would reduce general revenue by $4.6 million in fiscal 2024.

• Increase the $29 individual tax credit to $60 for each filer with taxable income below $22,900 a year. State officials project this would reduce general revenue by $19.6 million in fiscal 2024.

State officials project the overall plan would reduce general revenue by $133.25 million in fiscal 2022, $293.9 million in fiscal 2023 and $321.3 million in fiscal 2024.

Hutchinson said this is a very large tax reduction package and that 56.6% of the benefit would go to people with net taxable income up to $82,000 a year.

The governor said he also is talking with legislative leaders about trimming the top corporate income tax rate, and some of that would have to be "triggered" based on the state meeting certain revenue responsibilities to ensure the Revenue Stabilization Act is properly funded.

The Revenue Stabilization Act prioritizes the distribution of general revenue to state-supported programs such as public schools, colleges and universities, human services programs and prisons.

Hutchinson said there also are discussions with legislative leaders about further trimming the top individual income tax rate to 4.9%, and he has no objection to that as long as services are protected and "there is the right trigger."

"But that remains to be seen as to whether that will be part of [the income tax package] or not," he said.

Senate President Pro Tempore Jimmy Hickey, R-Texarkana, said in an interview that there also have been discussions about cutting the top individual income tax rate to 5.1% on Jan. 1, 2024, and to 4.9% on Jan. 1, 2025, with no trigger mechanism.

CORPORATE RATE

Other discussions are about cutting the top corporate income tax rate -- which is to drop from 6.2% to 5.9% on Jan. 1, 2022, under a 2019 law -- to 5.7% on Jan. 1, 2024, and to 5.5% on Jan. 1, 2025, and about establishing the $60-per-filer income tax credit as long as the state doesn't have to tap its long-term reserve fund to finance these tax cuts, Hickey said.

"That's just us being cautious [because] our tax deal is aggressive," he said.

[RELATED: See complete Democrat-Gazette coverage of the Arkansas Legislature at arkansasonline.com/legislature]

Hickey said he wants to rename the state's long-term reserve fund as the catastrophic reserve fund, require it to have a balance equal to 20% of the general revenue budget and replenish its funds with surplus money. The long-term reserve fund now has about $1.2 billion.

Afterward, Hutchinson said in a written statement, "It was my understanding that the agreement was to lower the individual income tax rate to 5.5% in 2022 and 5.3% in 2023.

"The discussion on triggers was to further reduce the rate down to 4.9% in the future," he said. "I also understood that the corporate tax reductions would not be reduced from 5.9% to 5.7% until calendar year 2024 with additional reductions each year; however, individual income tax reductions would take priority over the corporate income tax reductions."

Hutchinson said, "It was not my understanding that the low-income tax credit of $60 would be triggered. That credit was included at my request to allow for additional tax reductions for those in the low-income bracket."

House Revenue and Taxation Committee Chairman Joe Jett, R-Success, said it is prudent to delay holding the special session.

He said the income tax cuts would likely be close to a $500 million-a-year reduction and that he wants to be confident that "we have got this right."

ABORTION BILLS

The governor was asked whether he would place abortion legislation patterned after a Texas law on his call for the special session if there is no guidance from the U.S. Supreme Court on the matter.

Hutchinson said Arkansas already has a very restrictive law that prohibits all abortions except to save the life of the mother, and that has been enjoined, "so that is working its way through the courts."

"You have the Mississippi case that is working its way [through the courts] that I believe is a six-week ban," he said. "You have got the Texas case that is working its way through, so ... we have restrictive abortion laws [and] we need resolution by the courts.

"It would be wiser to wait until we get that guidance before we start passing laws again, and so if we get guidance, then I am open to looking at that guidance and seeing what step Arkansas should take, if any," said Hutchinson, who is an attorney. "But at this time, I have stated that that is not something we should do now because it's in the Supreme Court. Let's wait and see what kind of guidance we get from them."

Afterward, Sen. Jason Rapert, R-Conway, said in a news release that "all the Governor has to do is call a special session of the legislature with the Heartbeat Bill on the agenda and we will pass it."

"We don't need to wait on the U.S. Supreme Court for guidance," said Rapert, who is a candidate for lieutenant governor next year. "Arkansas people want to stop abortions right now. The opportunity to use this new legal strategy to stop abortions in our state is unique and we should take immediate action. The Legislature is ready to pass this law and shut down Planned Parenthood in Arkansas."

The Texas law forbids abortions if a heartbeat is detected, which can be around the six-week mark of pregnancy. Previous court rulings have allowed abortions up until the fetus is viable, usually around 22-24 weeks. The Texas law also allows private citizens, instead of the state, to enforce the law by letting them sue anyone helping a woman have an abortion.

To consider bills not on the governor's call for a special session, two-thirds of the 100-member state House of Representatives and 35-member Senate must vote to allow those bills to be introduced.

Print Headline: Governor delays call for session on tax cut plan

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