The House Revenue and Taxation Committee on Tuesday passed the governor’s tax cut bill, Senate Bill 6, with a compromise amendment that would exempt 40% of income gained from capital gains, not 30% as passed by the Senate.
The bill as passed by the Senate decreased the exemption from 50% to 30% to offset some of the loss of revenues caused by the overall middle class tax cut, but some legislators balked at that increase in taxes.
The bill by Sen. Jonathan Dismang, R-Searcy, otherwise cuts 2016 income tax rates from 6% to 5% for Arkansans making $21,000 to $35,099 and from 7% to 6% for those with incomes between $35,100 and $75,000. The tax cut was one of Gov. Asa Hutchinson’s signature campaign themes.
Tim Leathers with the Arkansas Department of Finance and Administration told committee members that the middle class tax cut would save a taxpayer making $75,000 up to $540 per year, while those making $21,000 would save $16.
The 50% exemption was passed by the Legislature in 2013. Under the amendment, the 40% rate would take effect Feb. 1. Leathers told legislators that, in a given year, about 100,000 Arkansans pay capital gains tax.
The move from 30% to 40% would have reduced state revenues $9.7 million this fiscal year had the exemption been in effect for the entire year, Leathers said. DFA will have to reconsider those numbers in light of the fact that the month of January will remain at the 50% exemption level under the amendment.
The middle class tax cut together along with the $9.7 million in added exemptions from 30% to 40% would reduce state revenues by about $90 million in fiscal year 2017.
Speaker Jeremy Gillam, R-Judsonia, told committee members that projected revenue growth should allow the exemption to be increased without requiring a cut in the governor’s budget. Gillam said after the committee meeting that the bill should run on the House floor on Thursday. He said after the meeting that he believed the measure had broad support.