State lawmakers need to be careful in their discussions about overhauling Arkansas' tax code because talk about axing certain exceptions -- such as Texarkana's state income-tax exemption -- could have negative economic repercussions, Sen. Jimmy Hickey, R-Texarkana, told fellow lawmakers Wednesday.
But a co-chairman of the Tax Reform and Relief Legislative Task Force, Rep. Lane Jean, R-Magnolia, said it's premature to talk about what tax exemptions lawmakers are going to eliminate and which ones they are going to keep.
The panel is expected to present a preliminary report by Dec. 1 and recommend legislation for the General Assembly by September of next year for enactment in the 2019 regular session.
During a meeting of the Joint Committee on Economic and Tax Policy, the committee co-chairman, Rep. Laurie Rushing, R-Hot Springs, said she wants the committee to meet on July 12 for a discussion about how it will work with the tax-overhaul task force, after the task force's meeting on July 11.
She said she also wants the committee to discuss items such as "tax exemptions, current spending and our revenues."
"I'd like others to bring ideas to the table, so we can have an open discussion and get a plan to move forward," Rushing said.
But Hickey, who serves on both the Joint Committee on Economic and Tax Policy and the Senate Revenue and Taxation Committee, said, "I think we need to be very careful with the way we proceed with this.
"I think what we say here could have a negative, detrimental effect on the economics of the state," he said.
"I know that is true for my area because, of course, the largest city in my district down there that sits on the Texas border we have an income-tax exemption as we all know about," Hickey said, referring to Texarkana.
"We do not survive without that," said Hickey, who represents Senate District 11 that includes Lafayette, Little River and Miller counties and parts of Hempstead and Sevier counties.
"If you have other people that come into town or [are] looking to relocate, if they hear these type things [about the possible elimination of the income-tax exemption], they're automatically just going to go to the Texas side where they don't pay income tax," he said.
Afterward, Hickey said he's heard some lawmakers talk privately about the possibility of eliminating the income-tax exemption for Texarkana. He pointed out that the option was discussed by a Tax Foundation economist during the joint committee's Nov. 14 meeting, based on the minutes of that meeting.
Texarkana, Ark., took advantage of Act 28 of 1977 that allows residents of a town with a "street state line" that borders a state without an individual income tax to hold an election to lower their income tax to equal the border state in exchange for a state sales tax that's 1 percent higher, according to a 2016 report by the Tax Foundation of Washington, D.C.
"In 2016, the absence of an income tax in Texarkana cost the state $21.2 million in [forgone] income tax revenue, but raised an additional $4.6 million in sales tax revenue for a net loss of $16.6 million in revenue," the foundation's report said.
Other towns that border no-income-tax states, like West Memphis, do not qualify. In West Memphis' case, the Mississippi River divides Arkansas and Tennessee -- not a street -- the foundation reported.
The Tax Foundation said Arkansans suggested that lowering the tax rate for all residents would be a much better solution than selectively exempting residents, and there is little economic argument for the exemption, either.
"While it benefits the residents of Texarkana, it does not actually limit cross-border competition. The tax disparity still exists. It is just moved several miles to the east, on the Texarkana city border, not the Texas state border," according to the Tax Foundation report.
When asked about the Texarkana income-tax exemption, Jean said it's too early for lawmakers to talk about what exemptions are going to be retained or eliminated because "we don't have all the facts to even comment on something like that either way."
During the legislative committee's meeting, Hickey said farmers across the state rely on many tax exemptions.
"They've had these floods up in northeast Arkansas. We've had them in our area [and] they're kind of beat down, so I don't want them to automatically just start thinking the Legislature is fixing to hurt them more," he said.
Afterward, Jean said he doesn't believe anybody can say which tax exemptions will survive the Legislature's scrutiny and which ones won't.
"Ag is a big part of the state and that's going to be weighted in. Heck, Texas doesn't have an income tax, but they have ag exemptions right and left," he said.
No lawmaker responded to Hickey's remarks during the committee's meeting.
The tax-overhaul task force was created under Acts 78 and 79 during this year's regular session in which the Legislature approved Gov. Asa Hutchinson's plan to cut individual income tax rates for Arkansans with less than $21,000 in taxable income, effective Jan. 1, 2019. Such cuts are projected by the state to reduce state general revenue by $25 million in fiscal 2019 and $50 million in each fiscal year thereafter.
The task force was created in part to placate some lawmakers who favor larger income-tax cuts, particularly for Arkansans with more than $75,000 in taxable income. The 2015 Legislature enacted Hutchinson's plan to cut individual income-tax rates for Arkansans with between $21,000 and $75,000 in taxable income; the state projected the cut will reduce general revenue by about $100 million in fiscal 2017, which ends June 30.
Information for this article was contributed by Brian Fanney of the Arkansas Democrat-Gazette.
Metro on 06/22/2017