House panel approves two competing tax cut plans for working poor, governor says his plan is ‘right thing to do’

Two proposals that would offer up to $90 million in tax breaks to the state’s working poor were approved Thursday by a legislative panel, setting up a possible showdown on the House floor or compromise legislation that would need to get a thumbs up from Gov. Asa Hutchinson.

The first bill, House Bill 1159, is an exact copy of a bill sponsored by Sen. Jim Hendren, R-Gravette, that was swiftly approved by the Senate Revenue and Tax Committee on Wednesday. HB 1159 sponsor, Rep. Matthew Pitsch, R-Ft. Smith, told members of the House Revenue and Taxation Committee today (Jan. 19) that he was dutifully carrying the governor’s $50.5 million tax cut plan.

“(This) takes people from the last sessions tax cuts – in addition to this, if you vote it to pass – 1,346,000 million taxpayers of them would have been granted a tax cut. That’s what we are after here today,” Pitsch said.

Traveling out-of-state to President-elect Donald Trump’s inauguration in Washington, D.C., Gov. Hutchinson said he was pleased his proposal was approved by the House panel in a voice vote following Pitsch’s presentation.

“I am pleased with our tax package as is. Our $50 million tax cut provides simple and straightforward relief for more than 600,000 low income Arkansans and continues my focus on reducing the state’s income tax rate. It’s the right thing to do, and, as such, it continues to generate a great deal of support from both sides, as indicated by the quick passage in both committees,” the governor said in a statement.

According to a well-traveled outline of the governor’s plan, the tax cut would aid 657,000 Arkansans who earn between $0 and $20,000 annually at a total cost of more than $46 million. Of that total, which is roughly 44% of the state’s population, nearly 120,000 taxpayers in the lowest bracket between $0 and $4,299 will be taken off the tax rolls completely.

EITC PLAN PITCHED AS ALTERNATIVE
After his presentation, Democratic lawmakers Sen. Warwick Sabin from Little Rock and Rep. Vivian Flowers of Pine Bluff and GOP legislator Rep. Kim Hendren of Gravette all asked Pitsch if his proposal was the best use of taxpayers’ dollars to help the working poor.

“I believe tax relief especially for the low-income Arkansans is something that I would support, especially for people in my district,” Flowers said. “But before we get to that point, I I’m wondering your thoughts about us even discussing a tax cut at this time when issues like highways not being address, teacher retirement and not exactly knowing what our budget given that we don’t know happen to the Affordable Care Act …”

Even with the debate, it took less than 15 minutes for Pitsch to get approval from the House committee, which is split 10-10 between Democrats and Republicans. Immediately afterward, Sabin took another 50 minutes to offer lawmakers what he called a better alternative that would be $10 million cheaper than the governor’s proposal.

According to Sabin, HB 1161, known as the “Working Families Opportunity Credit,” would mirror the popular and controversial federal Earned Income Tax Credit program that has been an integral part of the U.S. tax code for nearly 30 years. If enacted by the legislature, Arkansas would be the 27th state to implement a state EITC program, which would impose a 5% tax on the amount equal to the credit allowed to an Arkansas taxpayer under the federal EITC program.

“I think it is a better policy than what the governor is offering, and obviously I’ve made that case to governor’s office over the last few years,” Sabin said. “But, I think it is important to have this juxtaposition today so that people can at least hear both sides and how these policies work.”

The Democratic lawmaker then provided a detailed explanation of how his legislation was a better and more taxpayer-friendly alternative than the governor’s plan. He also answered a volley of questions from committee members, including queries from Republican lawmakers who quizzed Sabin about fraud and waste in the federal EITC program and concerns that it is providing refunds for people who don’t pay taxes.

Rep. Dan Douglas, R-Bentonville, said the state EITC program looked good on paper, but has not worked out well in the “real world.” He then gave an example of an unmarried, single mother with three children who worked for him that refused to get married because she would lose her federal EITC benefits.

“When they got their money back to help lift themselves out of poverty, they bought $2,500 worth of mag wheels and tires to put on a $1,500 pick-up,” Douglas told Sabin. “How does that help lift people out of poverty sir?”

Sabin told Douglas that one example of an anonymous person did not provide an accurate picture of the EITC program, which he said called an “anti-welfare” program that helps lift people out of poverty and incentivizes work.

“If I had to guess, that situation had a lot of factors in it that had nothing to do with the merits of the EITC program,” Sabin said, as the crowded committee room roared with laughter.

Following Sabin’s presentation, David Ray of the Arkansas chapter of Americans for Prosperity spoke against the bill, calling it a fraudulent-riddled “wealth distribution program.”

“This is refundable tax credit for individuals with a low tax liability,” Ray said. “And while it is administered through the tax code, it is primarily a spending program.”

Ray later testified that the Internal Revenue Service estimates that 27% of the $66 billion handed out annually through the EITC program are unjustified payments, costing taxpayers $17.7 billion a year.

Officials from the Entergy Arkansas, Southern Bancorp. Inc., and Arkansas Advocates for Children and Families (AACF) all testified in support of Sabin’s bill.  Southern Bancorp CEO Darrin Williams, a former Democratic House leader, said his banking group promotes the federal EITC program across the Delta.

After nearly an hour of debate, the House committee gave HB 1161 a “do pass” recommendation following a voice vote that included several “nays.” Rep. Joe Jett, R-Success, told reporters after the meeting that the full House would not likely support both bills at a cost of $90 million to taxpayers.

“My hope is that the governor and Rep. Sabin will get together, sit down and work through the process and see how we can come to some kind of general consensus on how we can work through this,” said Jett, chair of the House panel.

J.R. Davis, spokesman for Gov. Hutchinson, said he would not venture to say how the governor would respond if both House bills were approved, or if the House preferred Sabin’s EITC measure over the governor’s tax cut plan.

“I cannot speculate on the “what if” question, but I can tell you we don’t expect that to happen,” Davis responded.

The bipartisan bill, which failed to gain House approval in the 2015 session, has also signed on Jett and Sen. Jake Files, R-Fort Smith, the respective chairmen of the House and Senate committees that oversee state tax policy, as co-sponsors. Earlier in the day, Files said he does plan to run Sabin’s bill through his Senate committee at some point during the session.