Sen. Files wants 5-year sunset on all tax exemptions, Rep. Sabin argues for EITC measure

The chairman of the Senate Revenue and Tax Committee says he will file a bill to push for a sunset on all tax exemptions for the state of Arkansas.

Appearing on this week’s edition of Talk Business & Politics, Sen. Jake Files, R-Fort Smith, said he will file legislation as early as next week to put a 5-year sunset on all tax exemptions allowed in Arkansas. Over the course of the Blue Ribbon Commission on tax reform work, that will likely come from this session, Files said the groups receiving exemptions will have to re-justify the need.

“I’m working on it [the bill] now, that will sunset all exemptions in the next five years. I ask people to come back. If you’re getting an exemption, then it ought to be worth something because it’s costing the state money and we’re actually taxing other people. Hopefully we can close some of those loopholes, broaden the base and lower everyone’s tax burden in Arkansas,” Files said.

According to a 2012 Department of Finance and Administration analysis, tax exemptions amount to hundreds of millions of dollars or more than $1 billion, depending on interpretations.

State legislators are currently debating three major tax cut proposals in the 91st General Assembly. They include the governor’s $50.5 million low-income tax cut proposal, a military retirement benefits tax cut, and an Earned Income Tax Credit, which targets low-income individuals.

Files said that the military tax cut, which was to be paid in part by a tax increase on manufactured housing sales, is being altered to include a tax on digital downloads instead.

“There’s a carve-out for digital downloads that just deals with CDs, books and movies so when you walk into Wal-Mart or Best Buy you’re going to pay tax on those things. If you download them, you don’t,” Files said. “This just brings equity to those two things, but it should bring the bill in line and I think once we get this thing fixed next week, I think you’ll see smooth passage for it as well.”

Files is also sponsoring a measure that beefs up tax collections on Internet purchases, a program known as eFairness, that he contends could add $100 million to the state coffers if enforced.

“The interesting thing here is that it’s not a new tax,” he said. “The fact that it’s not being collected doesn’t mean that it’s not on the books. This replaces a use tax so when you buy something online, you’re required to pay that tax and I think there’s been more collection of that but there’s not nearly enough. This just brings parity along, brick and mortar stores, with the Internet collections. I think you’re seeing this all across the country.”

Rep. Warwick Sabin, D-Little Rock, has been pushing for an alternative to Gov. Asa Hutchinson’s low-income tax cut package. While he’s supportive of the $50.5 million tax cut, he contends his EITC bill will help more people. Sabin says the EITC is more targeted, costs less and is a proven policy.

“It’s cheaper and a lot of the reason why it’s cheaper is because it’s more efficient,” Sabin said of the $40 million price tag.

Could all three measures – totaling more than $90 million – reach the governor’s desk?

Sabin said, “Well, I don’t think so. I think we need to be responsible. There’s a burden here on the budget and part of this all started with the fact that in ’13, we cut capital gains rates for the most wealthy Arkansans. In ’15, we cut the rates for middle-class Arkansans and the only people who have been left out are the low income working Arkansans and that’s what we’re all trying to get to… I don’t think you can do all of it because I don’t think the budget could withstand that.”

Files, a supporter of EITC, said it will get a hearing in his Senate committee, but he’s not sure if all three work their way through the legislature.

“I do think it’s worthy of a good debate and I think it’s a great policy for the state. It’s actually a Ronald Reagan anti-poverty bill back in the day.”

Watch their full discussion in the video below.