House Approves Tax Cuts Over Governor’s Objections

As expected, House leaders passed three tax cutting measures over Gov. Mike Beebe’s objections, but not without drama.

On Tuesday, the House Revenue and Tax Committee approved bills aimed at reducing taxes on heads of household, manufacturers’ utility bills and the state’s capital gains tax rate.

Gov. Beebe has called for restraint in tax cutting proposals claiming that his half-cent grocery tax reduction was the only affordable tax cut that could be supported in his balanced budget.

State lawmakers disagreed.

Challenged by the Governor to find spending cuts in state government to offset tax reductions, legislators have latched on to Beebe’s projected $109 million in growth revenue built into his balanced budget. The three tax cuts passed today by the House could impact state revenues by as much as $75 million.

HB 1052 by Rep. Lane Jean (R-Magnolia) would lop an additional half-cent off the sales tax on utilities paid by manufacturers. Revenue estimates peg the bill impacting Arkansas finances by about $3.8 million annually. It passed without much debate by an 88-8 margin.

HB 1056 by Rep. Uvalde Lindsey (D-Fayetteville) makes technical corrections and provides tax relief for low-income heads of household. It’s revenue impact is estimated at $3.7 million annually.  The measure cleared the House with no opposition on a 93-0 vote.

The real drama centered on HB 1002 by Rep. Ed Garner (R-Maumelle). It would eliminate the capital gains tax on Arkansans. Garner has contended that the revenue hit to the state would not be anywhere near the eventual $68 million suggested by Arkansas revenue officials.

Citing a UALR study, Garner said the tax cut would eventually have a negative revenue impact on the state of $18.4 million by Year 3. In earlier years, the impact would be less, he said. He also argued that the elimination of the tax would eventually lead to tax revenue growth.

In House action today, a number of Democratic legislators attempted to remove their names from co-sponsorship of the proposal. The parliamentary move would have delayed a vote on HB 1002 until the next day and was a clear display that some of the original 66 members of the House who signed onto the bill would change their vote.

Garner, the sponsor of the bill, offered to amend their names off the bill in the Senate. "To do this at the last minute with this tactic is not deliberative and it’s designed to kill the bill and I think you know that," Garner told the full chamber.

The motion to place the bill on second reading for the purpose of the amendment failed on a 40-55 vote, clearing the path for an immediate vote on the bill.

A number of members spoke for and against the bill before the vote was tallied. In the end, it passed by a slim margin of 53-43 votes with one legislator voting present. You can link here for a roll call of the bill.

After the vote, Gov. Beebe reiterated his opposition to the bill and said he would fight it in the State Senate, where the bill now heads.  On Monday, Senate leaders are expected to take up a new round of tax cutting proposals.

Beebe spokesman Matt DeCample tells Talk Business that Beebe was "disappointed" in today’s votes. Philosophically, he has no problem with the Lindsey or Jean bills, just not in this current economic climate.

DeCample said the Governor does oppose Garner’s bill because it would only significantly help about 3% of the state’s population. In the Senate, Beebe will continue his opposition.

"He’ll talk to Senators just like he did Representatives and make sure they’ve got a clear picture of what the full impact of this bill is going to be," DeCample said.

At one point in the floor debate, Garner said that he knew lawmakers had been "pressured" and "threatened" to oppose the bill, a claim some members denied.

DeCample characterized the Governor’s conversation with legislators as "just doing his job."

"Anyone who doesn’t understand why the Governor wouldn’t twist arms doesn’t understand the office of Governor. Because part of his job is to exude influence where he can. Not a single threat by the Governor was made to any legislator," said DeCample.

He added that if anyone representing the Governor made a threat, Beebe would like to know who it was and what they said.

Freshman Rep. David Meeks (R-Conway) said, "I had at least one or two people come up to me and tell me that the funding for the secondary school – which would be UCA – in my district would be hurt if I voted for this bill."

Meeks said other legislators told him they received similar comments from local higher education officials.  "Many legislators took that as a threat," he said.