Senate President Jim Hendren, R-Sulphur Springs, eked out a major legislative victory before the legislature went home for spring break on Wednesday (March 20) by pushing through a controversial bill to provide tax breaks for low-income workers by increasing the tab for cigarettes and nicotine-laced e-smokes that are increasing popular among underage “vapers.”
After Hendren came to the floor to ask his colleagues to back Senate Bill 571, followed by two senators speaking against the bill and one in support, it was approved by a razor-thin margin of 18-14 in a “sound the ballot” challenge where all senators had to be seated for their vote to be counted. Three senators did not vote on the measure.
The bill would enact almost $100 million in cigarette and e-cigarette taxes by levying a 20% special excise tax at the retail level on cigarettes, or 80 cents a pack. E-cigarettes would be subject to the same taxes as traditional tobacco products not including cigarettes, amounting to a 67% tax. E-cigarettes currently are subject only to the state’s sales and use tax.
Those tax increases would fund the same amount in tax cuts, including an earned income tax credit of at least 5% of eligible income refunded through a check sent to lower-income Arkansans. That money would come from a trust fund where the credit could be adjusted up or down depending on revenues.
The bill also would reduce from 2% to zero the tax rate for incomes between $4,500 and $8,890 in the tax table for individuals making less than $22,000. It also would increase the standard deduction from $2,000 to $3,300.
Just as in the Senate committee debate on Monday, Hendren made his key points by citing the example of a single mom with two children earning $9.15 per hour and working full-time. He argued on the floor that the tax package would erase the $339.49 in state tax liability for the hard-working mother, and with the EITC receive a $77.30 check from the government.
An amendment that was added to SB 571, however, would delay the benefits provided by the EITC until 2022, a year after the fund begins accumulating, to ensure it has a large enough reserve. It also clarified that the EITC could be reduced below 5% of eligible income if revenues decline. And it increased the amount of cigarette tax revenues going to general revenues from $55 million prior to the amendment to $83.7 million.
The change was needed because Hendren said DFA had found that based on other states’ experiences, cigarette sales could drop from 140 million packs to 120 million, resulting in not only the loss of cigarette taxes but also sales taxes currently going to general revenue. The state Department of Finance and Administration has estimated that 275,000-300,000 Arkansans are eligible for the federal EITC.
Fellow GOP Sens. Trent Garner and Bob Ballinger of Camden and Berryville, respectively, both came to the Senate floor to oppose SB 571. Garner vehemently argued that the same woman cited by Hendren and other low-income workers would end up paying more in taxes if they were smokers or go across state lines to purchase cheaper cigarettes and tobacco products.
Sen. Missy Irvin, R-Mountain Home, was the lone senator to come to the floor to support the Senate President’s bill, noting that she has been contacted by many constituents concerning the “growing epidemic” of nicotine-laced, tobacco-flavored e-cigarettes that are sold to underage vapers. Following Wednesday’s vote, Hendren’s bill now goes to the House Revenue and Taxation Committee, where it is expected to run into equally strong opposition.
Following Wednesday’s busy legislative schedule, both the House and Senate recessed for the remainder of the week for spring break.