Gov. Asa Hutchinson’s signature middle class tax cut unanimously passed the Senate Revenue and Taxation Committee Wednesday with an amendment to do away with a capital gains tax cut passed two years ago.
Legislators in 2013 had voted to increase the exemption from 30% to 50% and exempt all capital gains above $10 million. The rate will revert back to the 30% rate under the amendment, which was introduced by Sen. Bill Sample, R-Hot Springs.
The bill’s sponsor, Senate President Pro Tempore Jonathan Dismang, R-Searcy, said after the meeting that Hutchinson “was part of the conversation” regarding the repeal, which he said accomplishes the goal of broad-based tax reform. Combining the repeal with the tax cut expedites the process, he said.
The bill would cut taxes by 0.1% in 2015 for individuals in the three income brackets from $4,300 to $20,999. Starting in 2016, taxpayers with incomes between $21,000 and $35,099 would have their state tax rates reduced from 6% to 5%, while income between $35,100 and $75,000 would be taxed at 6% instead of the current 7%. Those with incomes above $75,000 would pay a 6.9% rate on income above $35,100. Those with incomes between $75,000 and $80,000 could claim a bracket adjustment between $40 and $440.
The bill as amended would reduce state revenues by $12.8 million in fiscal year 2016 and $80.6 million in fiscal year 2017, according to the Department of Finance and Administration.
The bill is expected to come before the Senate on Thursday and must be approved by a three-fourths vote. With 29 co-sponsors, Dismang is confident it will pass the Senate.
“We have overwhelming support in the Senate with the understanding even that there was a possibility of this amendment coming on, so I feel very comfortable with where we are,” he said.
The tax cut was the centerpiece of Hutchinson’s 2014 gubernatorial campaign. Hutchinson was in the committee room prior to the vote. The governor laid out the numbers for his upcoming state budget in a meeting with committee members Tuesday.
Two Democrats on the panel, Sen. Larry Teague of Nashville and Sen. Bruce Maloch of Magnolia, said the meeting allayed their concerns about how the bill might affect the budget.
Speaker of the House Jeremy Gillam, R-Judsonia, said the bill will go on the House calendar next week. He said members would need time to study it.
“We’re not just going to go in in a rush to try to fit the calendar next week. We’re going to make sure that we do this in a respectful manner for the members,” he said. He later said, “At this point, I think a lot of this will be fluid over the next few hours and next couple of days as the members work through the process on our end of things.”