Arkansas senator puts forth $106 million tax-cut plan

Size of government related to how it’s fed, Hester says

In this photo taken March 12, 2015, Sen. Bart Hester, R-Cave Springs, talks to another legislator in the Senate chamber at the Arkansas state Capitol in Little Rock, Ark.
In this photo taken March 12, 2015, Sen. Bart Hester, R-Cave Springs, talks to another legislator in the Senate chamber at the Arkansas state Capitol in Little Rock, Ark.

Sen. Bart Hester, R-Cave Springs, will propose a bill in the next legislative session that would cut state income taxes and reduce general revenue by nearly $106 million a year, Hester said Wednesday.

The senator, who serves on the Senate Revenue and Taxation Committee, said his intent is to "start the conversation about what we are really going to do" during the General Assembly's regular session that starts Jan. 9. Gov. Asa Hutchinson has also pitched the idea of an income-tax cut to consider during the session.

Hester said he believes that the state can afford this proposed income-tax cut.

"I feel like the revenue forecasts are going to get a lot sunnier very soon," Hester said.

"If you truly want to have the deal of controlling the growth of government, you have to control the amount you feed it, and so this is my plan to control the amount that we feed the government," Hester said. "I actually believe with this plan, we can do this out of [general revenue] growth and not cutting any specific programs."

Hester said his proposal would exempt Arkansans who make less than $21,000 a year in gross income from the state's income tax. Currently, all income levels pay tax, including 0.9 percent on income of up to $4,299, 3 percent between $4,300 and $8,399, and 4 percent on $8,400 to $12,599.

The proposal also would set a 5 percent tax rate for incomes between $21,000 to $49,999 a year. Currently, the 5 percent rate is paid on incomes between $12,600 to $34,999 a year.

A 6 percent rate, now on incomes from $35,000 to $75,000, would apply to incomes between $50,000 to $75,000.

Arkansans who have income exceeding $75,000 would get an income-tax-rate cut from 6.9 percent to 6.8 percent under his proposal, he said.

He said his proposal would benefit nearly 577,000 Arkansans and reduce state general revenue by $105.8 million a year, based on state Department of Finance and Administration estimates.

But House Education Committee Chairman Bruce Cozart, R-Hot Springs, said, "We need to look at everything before we figure out where we cut money.

"We need to look and see what the [fiscal 2018 general revenue] forecast is. I don't want to be in an Oklahoma or Kansas position, where we are broke and can't do anything," he said.

The House and Senate Education committees' pending recommendation about the amount of state funds needed to provide an adequate education for public school students won't be aimed at making more money available to finance an income-tax cut, Cozart said.

When asked about Hester's proposal, Hutchinson spokesman J.R. Davis said, "We'll see a variety of proposals for tax cuts and other legislative plans" as the session approaches.

"The governor welcomes these ideas, but until we see the numbers from the revenue forecast, it is premature to commit to a specific amount of tax cuts and how they should be allocated," Davis said in a written statement. "Governor Hutchinson is working with DFA [Department of Finance and Administration] on his proposed budget and looks forward to working with the Legislature on tax reform proposals when we have all of the information."

Three weeks ago, Hutchinson said he believed that the state could conservatively afford a $50 million-a-year income-tax cut, even amid some economic uncertainty, but he hadn't yet decided how large of a tax cut to propose. He said his goal is to unveil a proposed income-tax plan on Nov. 9 -- the day after Election Day -- when his administration presents its general-revenue forecasts and proposed budget for fiscal 2018 to the Legislative Council and Joint Budget Committee.

At that time, he said was considering future income-tax-rate cuts for Arkansans who didn't receive any from his approximately $100 million middle-income tax cut that the Legislature enacted in 2015 for Arkansans with taxable income between $21,000 and $75,000 a year.

Earlier this year, the Republican-controlled Legislature and Hutchinson enacted a $5.33 billion general-revenue budget for fiscal 2017 that factors in the income-tax cuts approved in the 2015 session. Most of the $142.7 million increase in the budget goes to the Department of Human Services and public schools under the Revenue Stabilization Act that passed in this spring's fiscal session. Fiscal 2017 started July 1.

During the first three months of fiscal 2017, the net available general-revenue collections totaling $1.33 billion were $32 million, or 2.3 percent, short of forecast. Sales and use tax and corporate income-tax collections have fallen short of the forecast.

Senate Revenue and Taxation Committee Chairman Jake Files, R-Fort Smith, said he appreciates " Sen. Hester's zeal and consideration to put his proposal out there early so we can begin discussions on it and on tax policy in general."

"I think it says a lot about him that he would want this to be debated and allow everyone an opportunity to weigh in," Files said. "I also think that we should continue to monitor current economic conditions to see what can be done responsibly. It will be important to see how our revenues come in in the next [two] months compared to the forecast to see what options are on the table and how we can start getting much more specific on what will be a huge topic for the next General Assembly."

House Revenue and Taxation Committee Chairman Joe Jett, D-Success, said, "While I appreciate Sen. Hester working on tax cuts for the taxpayers of Arkansas, I still maintain the responsible thing to do is wait to see the [governor's] budget and see how much money there is to work with regarding cuts."

But Rep. Charlie Collins, R-Fayetteville, said Hester's plan is measured, fair and pro-growth.

"I think it is a great model for what we do in 2017," he said.

To help finance additional income-tax cuts, lawmakers also should review repealing some sales-tax exemptions, Collins said. He also said the state should consider repealing the law that would use savings from the discontinuation of desegregation payments of $70 million a year to Pulaski County school districts to cut the sales-tax rate on groceries from 1.5 percent to 0.125 percent.

But Files said, "For us to start repealing things we have already done and changing the game would take some very compelling arguments for me to support it.

"The grocery tax is a tax that needs to go away, and at this point I am not supportive of moving that tax cut that we have already done, agreed to, and presented so that we can make small adjustments to the income-tax-cut proposals," he said.

Jett said, "We have promised the people of Arkansas to cut the taxes on groceries using the desegregation money once it becomes available. And now if we change from that strategy ... and use that money for a different type of tax cuts, [that] causes me pause."

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