Tax Cuts Take A Tricky Detour

It hasn’t gone according to plan.

Of course, whose plan was THE plan no one can say.

A cluster of tax cut measures filed in the 88th General Assembly have moved through portions of the House and Senate, but seem stalled with a looming end to the session drawing near.

Everybody wants his or her tax cut to pass, but they don’t have the votes to complete the process.

Sen. Gilbert Baker is driving a larger used car tax exemption.
Rep. Lane Jean and Sen. Bill Sample have built dueling but similar tax cut bills to help manufacturers.
Sen. Larry Teague is handling the Governor’s grocery tax reduction.
Rep. Matthew Shepherd is shopping a back-to-school sales tax holiday.
Rep. Uvalde Lindsey wants to help low-income heads of households.
Rep. Ed Garner’s capital gains tax cut can only get halfway through the capitol.
Rep. Tracy Pennartz has bulldozed an investment tax credit for downtown redevelopment into the debate.

Republicans and Democrats. Senators and House members. House bills have made their way to the Senate and Senate bills have stalled in the House. No one seems to be budging.

In a complicated game of chess and chicken, moves are blocked and others that are being contemplated are withdrawn on short notice.

Perhaps the best analogy is to compare the tax cut debate to a NASCAR race. There are teams of driving companions, but they don’t necessarily want their teammate to cross the finish line first.

We’ve seen some wipeouts, such as Sen. Gilbert Baker’s crash-and-burn in the House Revenue and Tax Committee last week. Rep. Ed Garner dodged a major multi-car pile-up in the House when he steered his tax bill through rough riding to where it’s now parked.

In the final weeks of the session, it’s time to pull the caution flag in and let the drivers gear back up to full speed.

Rep. Davy Carter, the Republican from Cabot who is guiding the GOP-dominated House tax panel, hoped to have a viable alternative that would reorganize and/or eliminate certain income tax brackets in Arkansas. Carter and Sen. Jonathan Dismang (R-Searcy) filed a series of shell bills in order to seek a DF&A analysis of their proposed changes.

That analysis shows that the cost to alter the brackets would be too burdensome for a late session compromise. It will likely require extensive conversations and a multi-year goal to implement if possible.

Eliminating the personal income tax brackets would have the following revenue impact on the state coffers:

1% Bracket – $43.2 million
2.5% Bracket – $59.1 million
3.5% Bracket – $39.4 million
4.5% Bracket – $64.2 million
6% Bracket – $105.4 million
7% Bracket – $147.3 million

"I think the reality is that we are probably going to have to gather the data and do more work on that going forward," Carter tells Talk Business. He thinks his committee will have to study the proposals after the session and he sees pushing his subcommittee leaders to do just that.

Carter is one pivotal player in the tax cut debate who now seems resigned to finding a way to cobble a combination of the existing tax cut measures into something more cohesive this session. Where will it go? Even Carter isn’t sure.

In a recent Talk Business interview, Carter complimented Democratic Governor Mike Beebe’s long-term approach to eliminating the grocery tax. And, he has hinted to colleagues that maybe it should be dealt with more aggressively.

With the session winding down, the House Revenue and Tax Committee – which meets on Tuesday – might be as good a place as any to watch for a tax cut breakthrough.