Arkansas Democratic Party Chairman Michael John Gray, D-Augusta, told Talk Business & Politics that Gov. Asa Hutchinson’s newly proposed tax cuts were irresponsible government, noting several state agencies are already reducing budgets and services.
Hutchinson’s push to lower the state’s top income tax rate from 6.9% to 6% would cut an estimated $180 million in state revenue, if it were to be done all at once. Also, the Arkansas Department of Finance and Administration (DFA) estimates that 162,000 Arkansans would be eligible for the top tier reduction.
“Cutting income tax sounds good and all, but (Gov. Hutchinson) said nothing about how we are going to take care of state highways and pre-K education funding,” said Gray. “This will lead to more budget cuts in the future.”
Under his proposal to lower the state’s top tax rate, Gov. Hutchinson on Monday challenged the state’s legislative Tax Reform and Relief Task Force to make recommendations that “re-establish a fairer and more competitive income tax code.”
“That could mean closing certain exemptions that have outlived their usefulness,” the governor said. “All of this combined with our growing economy and savings efforts will allow us to cut taxes without jeopardizing essential services.”
At a meeting on Feb. 5, the legislative tax reform task force met to hear a variety of miscellaneous topics and discuss the process going forward. This was the first meeting since last month’s surprise firing of outside consultant PFM. The task force is now primarily assisted by the Bureau of Legislative Research (BLR) and the DFA, which provides updates on the impact of federal tax reform, on revenue sources from miscellaneous taxes and fees, and on the landscape of online sales tax collection efforts.
Last week’s meeting was the last educational meeting before the task force begins to consider specific policy proposals. The tax reform panel, which is led by Sen. Jim Hendren, R-Gravette, will hold its first two-day meeting on March 19 and 20. The first day of the meetings will discuss sales taxes, while day two will identify and discuss policy changes they want to recommend.
Sen. Hendren has also announced his intent to potentially engage outside consultants for dynamic revenue scoring on policy proposals after they are identified. Task force members then would vote on the sales tax proposals in April. The process to hear income tax ideas are expected to begin in April, followed by a vote in May. Property tax proposals will be heard in May and voted on in June. A final report is due on Sept. 1, 2018.
Now that the governor has outlined his proposal, Gray questioned the need for the tax reform panel to continue meeting and hearing other suggestions. In his first term as governor, the Legislature approved Hutchinson’s wish for a $100 million income tax cut plan for the middle class in 2015. In the 2017 session, Hutchinson penned into law his $50.5 million tax cut for lower income brackets.
Among 12 “benchmark states” the legislative task force has designated for comparison purposes, Arkansas has virtually the lowest threshold rate at the lowest bracket level, but the highest top tax rate at 6.9%. Of the six surrounding states, Missouri, and Louisiana have a 6% income tax rate, while Oklahoma and Mississippi are one percentage point lower at 5%. Texas has no income tax, and Tennessee has 0% on wages and salaries, but a 6% tax on income from equities and bonds.