House, Senate approve governor’s tax cut proposals

Two tax cut proposals that are key pillars of Gov. Asa Hutchinson’s $5.5 billion biennial budget were approved Monday (Jan. 30) at the State Capitol as the 91st General Assembly enters the fourth week of the 2017 legislative session.

On a day where both chambers of the Legislature had full agendas, lawmakers in the House and Senate took up House Bills (HB) 1162 and 1159 that will offer, respectively, a $50.5 million tax cut proposal for workers making less than $21,000 and a smaller tax break for military retirees and their families.

After today’s action in the House and Senate, Gov. Hutchinson applauded the approval of both bills.

“The legislative action today in support of two major tax reduction bills gives confidence to all Arkansans that tax relief and reform will be major accomplishments of this session,” Hutchinson said in a statement.

“I applaud the quick action by a bipartisan group of lawmakers to have the $50 million tax cut for 600,000 low income Arkansans passed by both houses. I am also grateful for the large margin of support in the House for the military retirees tax cut bill. This moves us a step closer to having a tax environment in Arkansas that will be an incentive for military retirees to locate in Arkansas,” the governor said.

The approval of the governor’s two tax cut proposals did not come without lengthy and sometimes colorful debate on HB 1162, the legislation sponsored by Rep. Charlene Fite, R-Van Buren, that will exempt all retirement benefits of military retirees and their families from the state income tax.

In pitching her bill on the House floor, Fite said Arkansas was one of a few states where the number of military families is on the decline. “Why is that?” she asked fellow lawmakers. “Because we are putting out the ‘unwelcome’ mat. We are the only state, from New Mexico to the Atlantic Ocean and the southern region, that will tax their military retirement pay at the full cost. All the other states around us exempt retirement military pay for state income tax.”

Following Fite’s speech, more than a dozen lawmakers streamed to the House podium to make fiery speeches for and against the legislation. Nearly every one of them praised Fite and the governor for proposing to give military retirees a tax break, but several also spoke vehemently against the last-minute amendments that attached to the bill.

At the House Revenue and Tax Committee meeting last week, Fite and Sen. Jake Files, R-Fort Smith, introduced several amendments to the governor’s original proposal to exempt all military retirement benefits from state income tax at a cost of about $13 million. To pay for the tax cut, the governor’s first proposal removed the exclusion from income on unemployment benefits, which he said would create $3.1 million in additional generation revenue. The most controversial part of the plan, however, called for applying the sales tax on the full cost of manufactured housing and candy and soft drinks, which would raise an extra $2.4 million and $13.8 million, respectively.

Hutchinson’s military-friendly plan also would reduce the state’s so-called “syrup tax” by 40%, and apply the extra $6.3 million to the Medicaid Trust Fund. Hutchinson said the tax was originally passed as a temporary measure. Altogether, the proposals would add $19.3 million to state tax coffers from closing those exemptions.

The amended bill introduced to the House panel keeps the manufactured housing levy as-is and levies the full tax on specified digital downloads and soft drinks and candy at a cost of $3.1 million. The most controversial part of the amended bill included a last-minute measure to lower the current “syrup” tax on soft drink ingredients sold by wholesalers at a cost of $13.4 million.

Reps. Bob Ballinger, R-Hindsville, and Stephen Meeks, R-Greenbrier, both spoke against the bill, saying they couldn’t vote for a bill that paid for one tax cut by increasing taxes to other Arkansas consumers.

“It is hard to take a stance against the governor’s office. It is hard to take a stance against friends,” Ballinger said. “We don’t have to take and make a political point of this. We don’t have to use our veterans in order to make some other (tax) reforms that may be a little more difficult for us to do.

“I would really be disappointed if we didn’t end without (removing) that syrup tax because that is a very complicated thing to do with Medicaid and a bunch of other things. That is not something that should be thrown in together with pieces of legislation just because it is the veterans. And that’s what happened … because it gives us cover.”

Rep. Charlotte Douglas, R-Alma, also came to the floor and seemed to capture the feeling of most lawmakers. “What a difficult thing to speak against this bill. But I don’t think that there is anybody who likes this bill,” Douglas said, as many of the lawmakers nodded their heads in agreement. “If we could separate out the taxes and vote for a clean bill to give veterans a break on their retirement, who wouldn’t vote for that?”

Douglas added that her son, father and other veterans in her district asked her to vote against the bill because of the last-minute amendments. “They said, ‘do not vote for this bill. It’s not right to put that on the backs of other Arkansans,” she said.

In speaking for the bill, Reps. Dan Douglas, Doug House and Vivian Flowers, each pointed out how the state would benefit economically by the increased number of working-age military retirees that the legislation would attract to the state.

Flowers, the only Democrat speaking for the bill, said she was also uncomfortable with several parts of the bill, including the tax on unemployment benefits. However, the Pine Bluff legislator said she was putting her support behind the measure because it would pay for itself in a few years and would benefit many of her constituents.

“If I had my druthers, this would be a bill that just had the exemptions and the tax,” Flowers said. “But this is a political process and we are here to do the work of the people.”

Rep. Charlie Collins, R-Fayetteville, also speaking for the bill, attempted to allay some concerns about Fite’s proposal. He pointed out HB 1159 included a proposal to create a Blue Ribbon tax panel that will review all state tax exemptions.

“Let’s take care of these military retirees … because this is the bill in front of us,” Collins said. “Then let’s use that task force to really get the kind of tax code we love here in Arkansas.”

After Fite closed for the bill, HB 1162 was approved by a vote of 75 yeas and 14 nays. There were two legislators not voting and eight lawmakers that voted present. The bill must now be approved by the Senate.

Earlier in the day, the Senate unanimously approved HB 1159, the first plank of the governor’s tax cut plan that provides tax cuts to Arkansas wage earners making less than $21,000 a year. The bill also sets in motion plans for the blue ribbon panel mentioned by Collins that will study ways to overhaul the state’s tax code.

After Sen. Jim Hendren, R-Gravette, spoke for the bill, the Senate immediately gave the legislation unanimous approval of 33 votes. Sen. Bryan King, R-Green Forest, did not vote and Sen. Scott Flippo, R-Bull Shoals, was absent. Sen. Hendren said the House must now approve his version of the tax cut plan tomorrow, and he expects the governor to sign the bill into law on Wednesday.

Once enacted, the governor’s tax cut plan would take effect ahead of the next General Assembly in January 2019. The task force would include 16 members of the legislature or their designees, and begin holding scheduled meetings within 30 days after sine die adjournment of the 2017 session.