LITTLE ROCK — The Arkansas House and Senate on Monday approved matching bills containing Gov. Asa Hutchinson’s proposed $50 million income tax cut for Arkansans whose net taxable income is under $21,000 a year.
A competing tax proposal that was on the House calendar did not receive a vote. The sponsor told reporters he remained hopeful for some sort of compromise on tax policy.
The House and Senate bills containing the governor’s plan passed in votes of 90-2 and 33-0, respectively. The chambers next will swap bills and consider each other’s identical measures.
In a statement Monday, Hutchinson said he was pleased with the votes and thanked the Legislature for giving his proposal bipartisan support.
“This is yet another step to further decrease the tax burden on hard-working Arkansans and make our state’s income tax rates more competitive with surrounding states,” the governor said in the statement.
Presenting House Bill 1159 on the House floor, Rep. Mathew Pitsch, R-Fort Smith, said the bill is part of a long-term approach to tax relief and includes a provision to create a legislative task force that would recommend future changes to the tax code.
In 2015, the Legislature approved the first part of the governor’s plan, a $100 million income tax cut for middle-income Arkansans. The $50 million low-income tax cut currently in the Legislature would take effect in the 2019 tax year.
“We’re sent here to do the best we can for the citizens of Arkansas. This tax bill (combined with the 2015 tax cut) gives 1,346,000 Arkansas taxpayers a tax cut in the last 26 months,” Pitsch told House members.
Presenting Senate Bill 115 on the Senate floor, Sen. Jim Hendren, R-Sulphur Springs, the governor’s nephew, said the people who receive the tax cut will put the money back into the economy by shopping locally and paying sales taxes.
“I think it’s good for Arkansas, I think it’s good for our economy,” he said.
Sen. Terry Rice, R-Waldron, asked Hendren if he could assure senators the tax cut would not derail the highway funding plan the Legislature approved last year. The plan calls for using 25 percent of each year’s budget surplus, plus money from other sources, to raise $50 million a year over the next five years so the state can qualify for $200 million a year in matching federal highway funds.
Hendren responded that the fiscal year that begins July 1 would not be affected by the tax cut because the cut would not take effect until Jan. 1, 2019. He also said the tax proposal represents “a new philosophy that’s come to Arkansas.”
“For a change, we think about the taxpayers first and then we think about spending second,” he said.
Rep. Warwick Sabin, D-Little Rock, voted for the governor’s plan and did not ask for a vote on his competing proposal, which would create an earned income tax credit for the working poor equal to 5 percent of the federal earned income tax credit, a measure estimated to cost the state $40 million a year.
Sabin told reporters later he is “not giving up” on his proposal. He said he would meet the governor late Monday afternoon to see if there is “any room for compromise or including elements of the earned income tax credit plan with his proposal.”
Pitsch told reporters he thought it was unlikely the governor’s proposal would be amended or that the chambers would reconsider their votes at this point in the process.
“You got 123 votes out of 135 (in support of the proposal). That’s a pretty solid bill when you’re talking tax cuts,” Pitsch said.
Under the governor’s proposal, income tax rates for people whose taxable earnings are less than $21,000 a year would change as follows:
From 0.9 percent to zero for people earning $4,299 or less a year; from 2.4 percent to 2 percent for people earning between $4,300 and $8,399; from 3.4 percent to 3 percent for people earning between $8,400 and $12,599; and from 4.4 percent to 3.4 percent for people earning between $12,600 and $20,999.
For Arkansans with incomes between $21,000 and $75,000, the income tax rate would change from 0.9 percent to 0.75 percent for income up to $4,299, to avoid a “cliff” effect when a taxpayer shifts from one tax bracket to another.
The legislative task force on tax reform that would be created under the bill would be required to issue a preliminary report by Dec. 31 and a final report by Sept. 1, 2018.