An Arkansas House panel approved a change to the state’s income tax brackets, a move that could deplete state revenues by $57 million a year.
HB 1585 by Rep. Charlie Collins, R-Fayetteville, would make changes to the personal income tax rates by elevating the top tax rate from $34,000 to $44,000 and then lowering the top tax bracket from 7% to 6.875%. HB 1585 also makes technical corrections to the lower income tax tables.
“Eliminating the income tax is not realistic for us in the near term,” said Collins, who pointed out that some surrounding states have no income tax and the highest percentage of a neighboring state is 6%.
“We’re putting ourselves in a position to try to restore some of that balance in the code,” he said. “It begins to communicate to job creators … that Arkansas is starting to move in a different direction.”
Arkansas adopted the personal income tax in 1929 with a 5% top rate for those making $25,000 or more. In 1971, a major reform to the tax rates was instituted included building the 7% top tax rate for wage earners.
TAX CUT PROJECTIONS
Collins said the revenue impact to the state under his bill would be roughly $57.2 million. He said the money to fund the tax cut would come from growth revenue in FY 2014 and FY 2015, when a combined $403 million in expanded tax collections are forecast.
Collins also stressed that if elements of Medicaid and health care reform are passed in this session, he could foresee a scenario where the Governor’s balanced budget recommendation of $1.027 billion for Medicaid could be reduced to $850 million – a savings of another $178 million.
“If revenues are greater, if Arkansas’ model of health care is developed, it’s possible that fiscal ’15 recommendations from the Governor could be less,” Collins said.
Several groups opposed the bill, including Arkansas Advocates for Children and Families (AACF) and the Arkansas Public Policy Council. Both groups argued that the tax cut would be more beneficial for high-wage earners and that proposals to help low-wage earners would be a better use of state resources.
Earlier in the committee, a bill supported by AACF, HB 1240, which would allow for an earned income tax credit for lower wage workers, was tabled. It would cost the state roughly $40 million annually.
House Speaker Davy Carter, R-Cabot, is planning to run his capital gains tax cut measure, HB 1966.
A bill to root out Medicaid fraud has been flushed out with more details that includes establishing an office of Medicaid Inspector General and providing a testing of Medicaid claims has been updated with specifics.
SB 914 by Sen. David Sanders, R-Little Rock, and Rep. Bruce Westerman, R-Hot Springs, would create an office of Medicaid Inspector General in the Governor’s office.
The head of the office would be a gubernatorial appointment, confirmed by the state Senate, and would serve at the will of the Governor.
The bill stipulates that the director “shall have not less than ten (10) years of professional experience” in prosecution for fraud, fraud investigation, auditing, or “comparable alternate experience in health care, if the health care experience involves some consideration of fraud.”
The bill also the office to hire a staff of undetermined size. The group would investigate program fraud and abuse working in conjunction with the Attorney General’s Medicaid Fraud Control Unit as well as U.S. attorneys and prosecuting attorneys in Arkansas.
The office of Medicaid Inspector General would be built by consolidating the staff and “other Medicaid fraud detection, prevention, and recovery functions from the relevant governmental entities into a single office.”
SB 914 also creates a new criminal offense of health care fraud and establishes five different degrees for prosecution.
It also provides that the office incorporate technology to test and strengthen the Medicaid payment system to detect fraud, improve accountability, and automate processes for the review of claims.
SB 914 also calls on an annual report on health insurance fraud to be submitted on or before March 1 by the Insurance Commissioner.
As Gov. Mike Beebe (D) and legislators attempt to hammer out a deal to use Medicaid expansion dollars to support subsidizing health insurance plans for lower-income Arkansans in forthcoming insurance exchanges, Republican lawmakers have pushed for more reforms to the current Medicaid program.