Asa Hutchinson Unveils Income Tax Cut Plan (UPDATED)

Republican gubernatorial candidate Asa Hutchinson unveiled details of his plan to reduce Arkansas’ individual income tax rates, a cornerstone of his tax cut platform for Governor.

“Arkansas is not competitive in its income tax structure,” said Hutchinson. He cited surrounding states with lower or no individual income tax rates as examples.

“Why is this important? It impacts the recruitment of industry,” he said.

Hutchinson laid out a first-year plan as Governor to reduce the income tax rate from 7% to 6% for Arkansans earning between $34,000 to $75,000 a year, and from 6% to 5% for those earning between $20,400 to $33,999 annually.

Hutchinson said the reduction would result in approximately $300 a year savings for up to a half-million taxpayers.

[Editor’s note:  Several have asked about the $300 a year savings for a half-million taxpayers, which could have been worded more clearly. Here are the exact quotes from the Hutchinson press conference, which should more accurately depict his comments.

Asa said, “It will mean a tax savings of around $300 for someone that’s been a few years in the nursing profession. It will mean a tax break of $300 for someone who’s been teaching, maybe, for 10 to 15 years. It will mean $300 tax savings for someone making around $50,000 per year.”

Later he said, “This will benefit, according to our figures, about half a million Arkansans.” 

The full audio version of today’s Hutchinson press conference can be heard here.]

The estimated cost of the tax cut provided by Hutchinson would be in the $100 million range, he said. Hutchinson pointed out the state finished its last fiscal year with a $299.5 million surplus. He emphasized that the tax reduction would come from growth revenue and surplus funds.

The GOP gubernatorial candidate said he would push for this initiative in his first year in office. He said that he would not jeopardize the state’s balanced budget and he added that any reductions to public education would be “off the table.”

Hutchinson said he would work the state legislature to further reduce the 7% tax bracket in future years.

Hutchinson provided information that Arkansas’ individual income tax accounted for roughly $2.895 billion in 2012.

“My number one priority as Governor will be job creation,” Hutchinson said. “One way to spur job growth is through tax reduction and I am committed to providing across-the-board relief to all Arkansans.”

Hutchinson also said that he felt the income tax reduction would be his top and possibly only tax cutting priority. If the opportunity to cut additional taxes further – such as targeted business tax cuts – Hutchinson said he would rather accelerate individual income tax cuts to more Arkansans.

Hutchinson faces a GOP primary challenge from Rep. Debra Hobbs (R-Rogers) and Curtis Coleman. Mike Ross is the only announced Democrat in the race for Arkansas Governor.

UPDATE:  The Arkansas Department of Finance and Administration provided additional information related to the surplus, but said it would need more data on Hutchinson’s plan to provide a full analysis of the proposal.

DF&A deputy director Tim Leathers said that the current surplus estimate for the current biennium is $126.13 million. He also cited an “unobligated” balance in the General Improvement Fund of $114.06 million.

That led Democratic Party of Arkansas spokesman Patrick Burgwinkle to call Hutchinson’s tax plan “fuzzy math.”

“The devil is in the details and Asa Hutchinson is still not being open, honest and transparent with Arkansans about the cost of his income tax plan. If Asa Hutchinson wants to slash almost $150 million in revenue in one year, he needs to say where he is getting the money,” said Burgwinkle. “It’s reckless and irresponsible to propose a tax cut without showing Arkansans the math.”

He noted that the $300 tax break for nearly 500,000 Arkansans cited by Hutchinson amounts to nearly $150 million.

The Hutchinson campaign countered that the calculations from the Democratic Party were inaccurate due to lack of the data used by the campaign.

“The misunderstanding on the cost computation is based on the fact that Asa’s plan does not cut taxes for persons making over $75,000, even on income they make between $20,000 and 75,000,” said press spokesman Jon Gilmore.

In essence, the Hutchinson campaign contends that only taxpayers whose incomes settle in the $20,000 to $75,000 range will qualify for the tax relief and the amounts will vary based on income levels. They provided a letter from DF&A and a spreadsheet for review.

Mike Ross’ campaign spokesman Brad Howard offered this response:

“Since launching his campaign, Mike Ross has said he would implement income tax cuts that target working families who need it the most, and we are pleased to see Asa Hutchinson has come around to Mike Ross’s position. However, as a proven fiscal conservative, Mike Ross has pledged to cut income taxes in a fiscally responsible way that maintains our state’s balanced budget and protects essential state services like education, public safety and Medicaid for working families and seniors,” Howard said.

The Coleman campaign issued this response:

“While I absolutely support a bold reduction in Arkansas’ income tax for middle-class wage earners, Secretary Hutchinson’s proposal does not go far enough. In my view, it reveals an unfortunate lack of understanding of what it will take to make us truly competitive with surrounding states for jobs and business. Cutting personal state income taxes will help – and most importantly provide much needed relief to most hard-working Arkansans – but in order to create a pro-jobs, business-friendly economic environment right here in Arkansas, it is crucial that we also reduce our corporate tax rates and eliminate our capital gains tax. Furthermore, Hutchinson’s proposal does nothing to address the real business killer in Arkansas: extreme overregulation. Whether it is small businessmen, entrepreneurs, hospital administrators, or school administrators and teachers, they are all telling me the same thing about state government: ‘Get off my back and get out of my way!'”