Tax cut debates heating up in Little Rock (Updated)

The forthcoming legislative session will be rich with many debates, but tax cuts may prove the most colorful and spirited during the 88th General Assembly.

Republicans and Democrats — some with reservations and conditions — are open to discuss repeals or reductions in the used car tax, corporate franchise tax, capital gains tax, sales tax on utilities for manufacturers, as well as corporate and personal income taxes.

And, of course, Gov. Mike Beebe has proposed another half-cent reduction in the remaining two-cent grocery tax.

Updated info: Beebe told reporters that he feels the half-cent cut to the grocery tax was the only responsible and conservative tax cut the state could afford at this point in time.



“The problem is, where are you going to cut your spending? We’re not going to cut K-12. What colleges are you going to cut, what nursing homes are you going to cut, what prison beds are you going to cut?" said Beebe in response to additional tax cuts. “Anybody who is going to propose additional tax cuts has an obligation to propose where those spending cuts would correspond.”

State Sen. Gilbert Baker, R-Conway, thinks the Governor’s tax cut proposal, though modest, will be left as is. He doesn’t see a bigger stab at removing more of the food tax.

"Since the Governor has taken the lead on that that’s probably where the focus will be. I don’t think anybody’s going to propose more than that," Baker told Roby Brock with Talk Business. (Talk Business is a content partner with The City Wire.)

The move could be a tactical one for tax-cutting legislators. They may not want to spend too much political capital on a larger food tax cut with other taxes in their cross-hairs.

"The Governor has put a balanced budget out there. Now everything we do will react to that," added Baker, who confirms that lawmakers are eyeing a variety of potential tax cuts. "I don’t think this budget proposal will be taken carte blanche from Republicans or Democrats and that’s what this process is all about."

Baker, who is the Senate chair of the powerful Joint Budget Committee, could find support at the other end of the state capitol. Incoming House Speaker Robert Moore, D-Arkansas City, expects and wants a spirited debate on tax reform in the House.

"I think what we’ll take a good look at in Revenue and Tax is a lot of the tax cuts are incentives to stir economic development. Sometimes I think that’s been a little bit of the frustration in Revenue and Tax that we don’t explore in detail the potential that tax cuts can bring about on the revenue side over the long term," he said.

Republicans have 12 members on the 20-member House Revenue and Tax Committee.  On the Senate tax panel, Democrats and Republicans are split 4 to 4. Democrats have majorities in both chambers.

Moore, who sponsored and passed two tax incentives bills for geo-tourism and Delta investments in the 2007 session, said he believes tax cuts and incentives can be beneficial.

"I believe they work," Moore said. "Long term, you’ll see benefits. You’ll see dollars invested, jobs created. If there was a magic course, we’d already have been on it. I think its all fair game to look at. This is one avenue to potentially stimulate the economy. We need a good debate on it."



But State Senator Percy Malone, D-Arkadelphia, warns that any tax cuts will have to be accounted for in the overall state budget by a discussion of expense reductions.

"I think its way too early for that," said Malone in reference to additional tax cuts.

He suggests that state agency budgets have been squeezed in the recent recession and state employees have gone without pay raises through several budget cycles.

"I don’t see us increasing taxes, but I don’t think there’s any room after the cuts that have been made to cutting revenue. I’d have to see how they’re going to fund government. Are we going to turn folks out of prisons? Are we going to diminish our commitment to education? Are we take folks out of nursing homes?" quizzed Malone.

Rep. Jon Woods, R-Springdale, wants to see a reduction or elimination of the annual $150 corporate franchise tax fee. A portion of that funding is earmarked for educational adequacy, a key provision for getting the state out of the Lake View school funding lawsuit earlier this decade. The tax brings in close to $9 million annually and could be replenished from other areas of the state’s $4.6 billion budget, he contends.

Woods does not think that tax cuts translate to government service cuts.

"I think the idea is that we’re always running surpluses, so if we don’t have to eliminate any services then let’s not,” Woods said.