Senate Tax Chair: No More Cuts This Session (UPDATED)

The Legislature will not replace any additional tax cuts this session aside from restoring cuts to the capital gains tax, the chairman of the Senate Revenue and Taxation Committee predicted Wednesday.

Sen. Jake Files, R-Fort Smith, said the money just isn’t there at this point.

“At the beginning of the session, we did the $100 million tax cut, and I think there was an impression that we had growth and surplus, and there was going to be at least some room to do some other things, and now as we get to the end of the session, it looks like a lot of that’s evaporated,” he said in an interview.

Earlier in the session, Files’ committee voted to repeal a provision passed in 2013 that increased the capital gains tax exemption from 30% to 50% effective Jan. 1, 2013. The Legislature will restore that 50% exemption because the money has been identified to do that, Files said.

“But that’s really all I see at this point unless something else changes miraculously between now and Friday,” he said.

Among the casualties of the declining surplus is Files’ own SB725, which would have reduced the tax on soft drink syrup by 37%. The tax is a major funding component of the Medicaid Trust Fund.

“I don’t anticipate bringing it back up,” he said. “I think there’s a lot of people that are disappointed in that. It had a lot of momentum, but at this point, we don’t see a clear path to making sure that funding cuts are not going to happen, and I don’t think anybody that signs on as a sponsor wants to just raid Medicaid and compromise services and not have an answer for how that revenue’s replaced.”

Files said the issue needs to be addressed. The soft drink tax is the only Medicaid funding component applied to a particular industry that doesn’t receive benefits in return. He said it could be considered by the task force of legislators considering overall Medicaid reform that was created to resolve the impasse over the private option.

Files said more comprehensive tax reform is needed.

“I think it just again calls for us to look at the budget of the state in a different way than we’ve just continually looked at it,” he said. “Stop spending one-time money. Stop looking at surpluses as the answer to fill gaps, and start looking at real reforms, and when you have real reforms, there’s going to be cuts, but you have to look at it in the scheme of, we can’t keep doing this the way we’ve been doing it.

“And I hope that’s something that we’ll undertake in the next two years is some meaningful reforms that will not only shrink the size of government but do it in an efficient way where … meaningful services are not lost, and we can proceed in a conservative direction and not be budgeting in a way that outpaces inflation.”

UPDATE: After the Senate Revenue and Tax committee, Files altered his previous statement as a coalition of supporters, including Lt. Gov. Tim Griffin, advocated for a veterans’ tax cut bill.

“We are working on finding the money currently. [The] bill is still alive,” Files tells Talk Business & Politics.