House, Senate bills filed endorsing governor’s tax cut proposal, creates task force to reform tax code

Two identical House and Senate bills were filed on Wednesday that will lay the foundation for Gov. Asa Hutchinson’s $50.5 million tax cut proposal and set in motion plans for a blue ribbon panel that will study ways to overhaul the state’s tax code.

Senate Bill 115, sponsored by Sen. Jim Hendren, R-Gravette, and House Bill 1159, filed by Rep. Mathew Pitsch, R-Fort Smith, mirror the details of Hutchinson’s tax cut proposal that will reduce the tax burden for the bulk of the state’s lowest wage earners making less than $21,000 a year.

If passed by lawmakers, the governor’s tax cut plan would take effect just ahead of the next General Assembly in January 2019. The task force would include 16 members of the legislature or their designees, and begin holding scheduled meetings within 30 days after sine die adjournment of the 2017 session.

The legislative work group would be tasked to file a preliminary report with the governor, House Speaker and President Pro Tempore on the task force’s activities, findings and recommendations by the end of 2017. A final draft of the task force recommendations must be completed by Sept. 1, 2018.

First unveiled by the governor on Dec. 13, Hutchinson’s plan will cut taxes for an estimated 657,000 Arkansans who earn between zero and $20,999 annually will get a total tax cut of more than $46 million. Of that total, which is roughly 44% of the state’s population, nearly 120,000 taxpayers in the lowest bracket between $0 and $4,299 will be taken off the tax rolls completely.

Those who make between $4,300 and $8,399 will see a reduction in their tax rate from 2.4% to 2%, which will amount to a revenue reduction of $7.5 million. The taxpayers would see annual savings of $34 if taxed at the full rate at the high end of the bracket. Wage earners making between $8,400 and $12,599 will see their earnings cut to a tax rate of 3%, down from the current 3.4%. That would take a $5.6 million piece out of the state’s total tax revenue. The taxpayers would see annual savings of $51 if taxed at the full rate at the high end of the bracket.

The last low-wage tax bracket, those earnings between $12,600 and $20,999, will see their tax rate reduced by one percent from 4.4% to 3.4% if the governor’s plan is approved by the legislature. That will lower the state’s revenue collections by $10.9 million annually. Those taxpayers would see annual savings of $211 if taxed at the full rate at the high end of the bracket.

An additional $4.3 million will go toward bridging the lower income brackets with the middle income brackets to prevent the “cliff effect,” state budget officials said.

The swift filing of the new bills by Hendren and Pitsch provide a strong first step for the passage of the second phase of the governor’s plan to overhaul the state’s tax code, which has not been substantially reformed in nearly 50 years. In his first official act as governor in 2015, Hutchinson was able to enact a $102 million tax cut that lowered the state’s middle income tax bracket from 6% to 5%.

In his “state of the state” address on Tuesday, Hutchinson called on lawmakers to enact the second tier of his tax cut plan that he said will reduce the tax burden for more than 90% of Arkansas taxpayers.

“Yes, that means there’s more to do. I pledge to continue down the path of lowering the income tax rate for all Arkansans,” the governor said. “Now, I know that some of you say, well, this is not enough and that we need to have a more comprehensive tax reform package. I agree with you.”

Hutchinson continued: “We need a specific plan for the future so that the public knows the direction we are heading and how we can get there. My goal from the beginning has been to reduce the overall high income tax rate in Arkansas and to do it for all Arkansans.”

In speaking directly to some lawmakers who wanted a larger or different tax cut for higher wage earners, Hutchinson asked lawmakers to support a Blue Ribbon Legislative Task Force to be created and directed to recommend further tax reform.

“The priority goals are fairness, competition, simplification and economic growth. The focus of the plan is to reduce the high income tax rates in Arkansas,” he said. “We need to have a plan to reduce the tax rate over time to a more competitive level. Let’s create that task force, and I ask your support.”

That appeal by the popular Republican governor caused Sen. Bart Hester, R-Cave Springs, and Rep. Charlie Collins, R-Fayetteville, to back off filing competing tax cut proposals and put their full support behind Hutchinson’s efforts.

“If what the governor just mentioned is what I’m interpreting it to be, then I would foresee me backing down this time for a more comprehensive plan,” Hester said after the governor’s address. “I think if I back off right now, I can get more than I wanted next time around.”

Hester’s tax cut plan, announced last year, had proposed a $105 million income tax relief plan that would expand the 5% income tax bracket to all taxpayers with annual incomes between $25,000 to $50,000. Hester said his plan would have benefitted people with incomes of $21,000 to $35,000, or add another 187,000 to the 5% income tax bracket.

Sen. Jake Files, R-Fort Smith, said during a Senate panel meeting on Wednesday before the two tax cut bills were filed that lawmakers would move quickly to debate the governor’s tax cut proposal as soon as legislation was drafted. Files is chairman of the influential Senate Revenue and Tax Committee, which reviews legislation affecting the state’s complex tax code.