Senate Panel Passes 3 Tax Cut Bills (updated)

As expected, a Senate tax panel passed three tax cutting proposals on Monday – different measures than those passed by the House – and a powerful lobbying group staked its opposition to all tax cuts in the 88th General Assembly. Later in the day, Gov. Mike Beebe said he wouldn’t fight the legislature on the Senate-approved tax cut measures.

As expected, SB 274, SB 275 and SB 276 all sailed out of the Senate Revenue and Tax Committee on voice votes.

SB 274 by Sen. Gilbert Baker (R-Conway) would raise the threshold for the application of the used car tax from $2,500 to $5,000. It would have a revenue impact of roughly $7.4 million per year.

SB 275 by Sen. Bill Sample (R-Hot Springs) would provide a tax break for manufacturers. It is slightly different from a similar House-passed measure and includes utilities who use natural gas in their processes in the definition of manufacturers.  It is expected to cost the state about $7 million in revenue in its first year and as much as $20.8 million by Year 3.

SB 276 by Sen. Larry Teague (D-Nashville) would reduce the grocery tax by an additional half-cent, part of the Governor’s legislative package. Its cost impact is approximately $15 million annually.

In a letter released Monday, the Association of Arkansas Counties announced its opposition to all tax cuts in the 88th General Assembly, including the Governor’s grocery tax reduction.

"State and local governments in Arkansas have weathered the worst economic times since the Great Depression, but we are not out of the woods yet," an AAC release stated. "At a time when counties are struggling to deliver vital, constitutionally mandated services (like roads, elections, public safety, jails, real estate filings, courts) we simply can’t afford to alter the existing tax base."

AAC Executive Director Chris Villines tells Talk Business that his group, which represents county judges, clerks and other elected officials, decided that opposing all tax cuts would be best in the face of uncertainty of funding at the national level.

"We felt like the only way to oppose one was to oppose them all," said Villines.

The next move in the tax cut debate could happen as early as Tuesday on the Senate floor. Sen. Teague said that he would consult with the Governor to determine how quickly he would move his bill for a full Senate vote.

Sen. Baker expected all 3 bills to be passed by the Senate this week, then he suggested negotiations between House and Senate leaders and the Governor’s office would occur.

"When we tax cut a dollar, it’s a real dollar. When we spend a dollar, it’s a real dollar in Arkansas," said Baker, co-chair of the powerful Joint Budget Committee. "Budgeting and tax cutting is all about priorities."

Baker said he felt that growth revenue proposed by Gov. Beebe would clearly be the focus for cuts. Beebe has proposed growth revenue of approximately $109 million, but his grocery tax bill would have an additional impact of roughly $15 million.  Baker said all of that was on the table, but he personally wanted to guard $55 million for increased adequacy funding for public education.

Under Baker’s calculations, there could be as much as $69 million in play for legislative tax cuts.

Republican Sen. Michael Lamoureux of Russellville, vice-chair of the Senate Revenue and Tax Committee, said he thought the full Senate would take action on all 3 bills on Tuesday. He then predicted a slowdown for negotiations.

"It won’t move so quickly after tomorrow," he said.

But action may happen faster than expected. After the committee meeting, Beebe told reporters that he would not fight the legislature on the Senate tax cut bills.  He did single out the capital gains tax cut as a measure he would continue to oppose. Beebe’s message indicates that a deal between the Senate and his administration would be possible, while the House bills remain in limbo.