Arkansas Lawmakers debate tax changes, tax review nixed

Sen. Jason Rapert, R-Conway, used Thursday’s interim Joint Revenue and Tax Committee to push for tax incentives for impoverished regions of Arkansas, but the committee chairman challenged the panel to think about broader tax policy issues.

In the last legislative session, Rapert and Sen. Gene Jeffress, D-Louann, and Rep. David Sanders, R-Little Rock, pushed a bill, the “Arkansas Economic Rehabilitation, Development and Growth Act.” The bill sought to establish tax-based incentives for regions of the state that have suffered massive population losses – in essence, counties predominantly defined as in Arkansas’ Delta.

The bill was sent to interim study in the 2011 legislative session.

Today, Rapert ran through a litany of economic statistics that showed the plight of many Arkansas counties. He noted that 40 of the 75 counties are considered “economically distressed” by the Delta Regional Authority (DRA).

He implored lawmakers to consider passing his measure in the next regular legislative session, which won’t convene until January 2013.

“We need to create the best economic environment in our region,” Rapert said. “We don’t need to just take care of the rich. We need to pay attention to both ends of the spectrum.”

Rapert’s proposal provides for four definitions to qualify for incentives:
• A county has to have a net loss of 10% of population in the last decade;
• A county poverty rate at least 50% above state average;
• An unemployment rate equal to or in excess of 135% of state average; and,
• A county must considered “distressed” as defined by the Economic Development Administration or the DRA.

If a county qualified for the incentives, it would provide for individual and corporate income tax relief to people and businesses in the area. The corporate income tax rate would be reduced to zero. Individuals would pay no taxes on the first $24,000 of income earned.

Rapert claimed that the tax incentives would more than pay for themselves with new economic activity.

“That sounds like trickle down to me,” said State Sen. Jim Luker, D-Wynne, who quizzed Rapert on details and costs of his plan.

THE IMPACT
Department of Finance and Administration officials came prepared to apply the cost impact to just 19 counties that could be affected, not 40. They built their estimates on their interpretation of qualifying counties in the proposed bill.

Based on the 19-county estimate, DF&A said that Rapert’s proposal could cost the state $42 million on corporate income taxes and $78 million on individual income taxes. For 40 counties, DF&A deputy director Tim Leathers said the estimate would be “considerably higher.”

Leathers also said that the bill could be complex to institute. He noted that corporations don’t pay income taxes based on county locations, so there would have to be some sort of procedure to figure out how to calculate corporate tax for a business with stores in counties that qualify and those that don’t.

He said that the finance agency would desire uniformity statewide on proposed tax changes versus a partial county application.

CARTER’S CALL

Rep. Davy Carter, R-Cabot, chairman of the House Revenue and Tax Committee who has proposed a total review of all sales tax exemptions on the books, called on members to think in broader policy terms.

“My challenge to all of us is to figure out what do we want to do,” Carter said. “We make policy, so the question is what is the state of Arkansas’ policy on taxes.”

“We need to define what is the state’s policy on taxes… Is it effective? Is it warranted? What’s it going to do?” Carter asked. “We’re not going to cut $100 million, $200 million, $300 million in taxes [at once].”

Carter, though supportive of Rapert’s tax presentation, expressed some skepticism about the piecemeal approach of the plan.

“When you have more exceptions than the general rule, you need to change the rule,” he said. “That’s when you need to address the policy.”

TAX REVIEW PULLED
House Speaker Robert Moore asked committee chairmen to remain focused on budget matters in the upcoming fiscal session, including a request that no interim study proposals be brought before standing committees.

The request convinced Carter to pull back on his intention to review all sales tax exemptions and exclusions in the House Revenue and Tax Committee during the session.

Speaker Moore said: "As we continue our preparations for the fiscal session, I want to reiterate my request that you remain focused on the narrow mission that we are required to accomplish during this time. I believe it is our duty to efficiently and effectively take care of the business mandated in Amendment 86 and then, barring some issue arising that is so compelling as to otherwise likely necessitate a special session, adjourn and return to our districts. Based on my conversations with a number of you regarding the need to deal with budget matters accordingly, and without unnecessary distractions, it is the policy of the House of Representatives for committees to not conduct meetings during the fiscal session for the purpose of considering ISP’s.  By logical definition, “interim study proposals” are matters to be studied when the legislature is not in session….i.e., in the “interim”. Aside from the obvious, there are a number of other substantial reasons to not consider ISP’s during the session which I will be happy to discuss at your convenience. I wanted to advise you early of this policy so that you can appropriately factor into your plans for committee activity during this period."

Carter said he was comfortable with the request and would use time in the session to explain procedures and define goals and a scope for his committee in the interim period after the session concludes.

"His recommendation is wise and there is no disagreement or fuss from me," Carter said. "We'll get into substance after the session."

Speaker Moore also sent an email to all House members reminding them that an internal rule restricts fundraising from the time the General Assembly gavels in until it adjourns.