MICHAEL R. WICKLINE
Most members of the Senate Revenue and Taxation Committee say they intend to vote Wednesday for legislation on Gov. Asa Hutchinson’s plan to cut tax rates for the lowest-income Arkansans.
But most of the eight committee members said they don’t like another proposal by Hutchinson, which is to apply sales taxes to the full cost of a manufactured home. Such homes are now taxed at 62 percent of their value. That sales tax proposal is included in other legislation that would exempt recipients of military retirement benefits from paying state income taxes on those benefits.
The cut in the individual income tax rate for Arkansans with taxable incomes below $21,000 a year would become effective Jan. 1, 2019, under Senate Bill 115 by Senate Republican leader Jim Hendren of Sulphur Springs. The tax cut, because it would begin in the middle of fiscal 2019, is projected to reduce general revenue by $25 million that fiscal year, and $50 million in the following full fiscal year.
Some lawmakers have been reluctant to support the Republican governor’s plan because sales tax collections have lagged behind forecasts so far in fiscal 2017, which started July 1.
Sen. Bill Sample, R-Hot Springs, said he’s going to vote for SB115 when it comes up in committee Wednesday.
“If it were Bill Sample doing business, I probably wouldn’t do it,” Sample said Friday. “But this is the governor’s bill and his call, and he says we can afford it. If something comes up [with the tax cut], then he’s the one that has to answer the question. But I am going to vote for it.”
S e n . B r u ce M a l o c h , D-Magnolia, said he would prefer to wait until later in the legislative session, when the state has a few more months’ worth of tax collections, before voting on SB115. “But I know the governor is pushing for us to hear it [this week], and I plan to vote for it.” The session started last Monday and resumes Tuesday.
“The banker in me says we ought to wait, but the governor has pushed. … I think $50 million is all we should do. I would be OK with not doing anything,” he said.
Another committee member, Senate Democratic leader Keith Ingram of West Memphis, said he’ll support SB115.
“I would prefer to look at Rep. [Warwick] Sabin’s legislation” to create an earned income tax credit in Arkansas, Ingram said, referring to the Little Rock Democrat’s House Bill 1161. “The targeted income tax cuts have been very successful in other states.”
The Senate panel also includes Senate President Pro Tempore Jonathan Dismang, R-Searcy, who said he’ll vote for SB115 on the basis of Hutchinson’s confidence in the revenue forecast and budget.
Hutchinson said he expects the Senate and House tax committees this week to approve his plan, which would change the lowest income tax brackets and benefit more than 600,000 Arkansans.
If approved by the Senate tax committee, the bill would go to the full Senate. If approved there, it would go to the House, where it would be assigned to a committee. If that committee approved it, it would go to the full House, and if approved there, it would go to the governor to be signed into law.
“From my discussions with legislators, the measure has broad support both within the General Assembly and in the public,” he said in a written statement. “The $50 million tax cut is in the second year of the biennium and represents a cautious approach to assuring a fully funded budget.
“There are some who have advocated a larger tax cut, but larger cuts would put at risk our ability to meet the other needs of the state. This proposal is carefully balanced and timed to allow our economy time to grow,” he said.
“Two years ago we absorbed a $100 million reduction in tax rates but our economic growth allowed all categories of our state budget to be met. The current tax plan is important to keep on the track of reducing the income tax rate for all Arkansans,” Hutchinson said.
In 2015, the Legislature approved his plan to cut individual income tax rates for taxable incomes ranging from $21,000 to $75,000, which state officials projected would reduce general revenue by about $100 million in fiscal 2017. Senate Revenue and Taxation Committee Chairman Jake Files, R-Fort Smith, said last week that he thinks the state can afford Hutchinson’s $50 million-ayear income tax cut.
SB115 also would create an Arkansas Tax Reform and Relief Legislative Task Force with 16 lawmakers to recommend a comprehensive plan for further reducing individual income tax rates. The task force would be required to file a final written report with the governor, House speaker and Senate president pro tempore by Sept. 1, 2018, in advance of the 2019 regular legislative session.
Rep. Mat Pitsch, R-Fort Smith, said he plans to present his bill that’s identical to SB115 to the House Revenue and Taxation Committee on Thursday. Pitsch’s bill is House Bill 1159.
Pitsch declined to project whether his bill will clear the House tax committee, saying he keeps his predictions to himself.
The 20-member committee consists of 10 Democrats and 10 Republicans. The House consists of 76 Republicans and 24 Democrats.
“Running it [this week] seems a little premature,” House Democratic leader Michael John Gray of Aug u s t a sa i d . “We respect the governor’s position, and we just want to have that d i s c u ss i o n about priorities, and I don’t know that they can get it done by the pace they are setting.”
Gray said Democrats could block the House tax committee’s approval of HB1159 on Thursday, but “that is not where we really want to go.”
“The last thing we want is to start a fight this early in the session. We would rather have a conversation and collaborate than have a fight like that,” he said.
Pitsch said his bill “is the governor’s $50 million low-income tax cut, and it’s been out there for some time.”
Hutchinson unveiled his proposed tax cut plans Dec.
13. Hendren and Pitsch filed their bills Wednesday.
Sen. Jane English, R-North Little Rock, and Rep. Charlene Fite, R-Van Buren, on Thursday filed identical bills to enact Hutchinson’s plan to exempt military retirement benefits from income taxes starting Jan. 1, 2018. They are Senate Bill 120 and House Bill 1162, respectively.
The first $6,000 a year in military retirement benefits is exempt under current law.
State officials are projecting $13.4 million in reduced tax revenue resulting from the exemption on military retirement benefits. That figure is based on 29,009 retirees with average benefits of $462 each, said Jake Bleed, a spokesman for the state Department of Finance and Administration.
The military pensions exemption and reducing the soft-drink syrup tax from $2 per gallon to $1.26 per gallon, would reduce revenue by about $19.3 million a year, state officials have said.
To compensate, SB120 and HB1162 would levy a 6.5 percent sales tax on the sale of candy and soft drinks, now taxed at the 1.5 percent rate on groceries; remove the income tax exclusion on unemployment compensation, to mirror federal law; and apply the sales tax to the full cost of manufactured housing.
Legislative leaders said the House and Senate tax committees may consider SB120 and HB1162 in the third week of the session.
J.D. Harper, executive director of the 105-member Arkansas Manufactured Housing Association, has warned that the proposal would increase the cost of the average new manufactured home by about $1,800. The average purchase price is $65,000, and “if they finance it over the life of the loan, it’s about $3,500.”
About 1,600 new mobile homes are sold every year in Arkansas, he said. State officials have said the manufactured home proposal would raise about $2.4 million a year.
“We are passing the tax cut for poor people” with taxable incomes of less than $21,000, Sample said, but “it seems like it isn’t right that we are going to add a tax back onto the people” by applying the sale tax to the full cost of manufactured housing.
“I don’t have a problem with giving our military people a break,” Sample said. “I am going to vote for the military tax [cut] if the governor is willing to change, and his staff told me … they were, so we’ll see how that works out.”
Sen. Jimmy Hickey, R-Texarkana, another member of Senate Revenue and Taxation, said he plans to vote for Hutchinson’s proposed $50 million tax cut and military benefits exemption “as long as we are not eliminating the manufactured housing” partial sales tax exemption.
“You could lower those tax brackets to make up for that [$2.4 million]. You could have a $48 million tax cut,” he said.
Sen. Jason Rapert, R-Bigelow, also on the committee, said he supports the military benefits exemption, but “I’m not in favor of doing away with that [manufactured housing] exemption.”
“I think we can pull back on some of the growth in the budget to find the $2.4 million,” he said.
A n o t h e r co m m i tte e member, Sen. Larry Teague, D-Nashville, said: “I want to help the veterans, but I don’t want to do it on the backs of people who buy mobile homes.
“I don’t know how we get it worked out, but I am sure we will,” Teague said.
Dismang said he supports Hutchinson’s plan on military benefits.
“To me, it is just a [question] of priorities as far as we have a taxing structure in our state. I believe a priority should be placed on veterans retirement benefits,” he said. “I understand why heartburn exists [about the mobile home exemption],” but the tax reform task force will review many loopholes and exemptions during the next two years, he said.
“This is a good test case of what to expect from this committee and its deliberations,” Dismang said.
Asked whether he expects the House and Senate tax committees to approve the bills on military benefits without making any changes, Hutchinson said, “I am not aware of any proposals that would provide alternative offsets, and I am not aware of any specific amendments that will be offered.
“I am open to ideas, but I believe the current proposal is workable and the best approach to accomplishing tax relief for our military retirees,” he said.