Gov. Hutchinson signs $50.5 million tax cut into law, says it will boost Arkansas economy

Gov. Asa Hutchinson signed the centerpiece of his tax cut proposals into law on Wednesday during the first bill signing ceremony of the 91st General Assembly, noting that nearly half of the state’s 1.35 million-person labor pool will soon be able to put more money in their pockets.

In taking his pen to enact SB120 and HB1159 into Act 79 of 2017, Hutchinson said his $50.5 million plan will offer a break on income taxes to Arkansas wage-earners making less than $21,000 a year and boost the state’s economy at the same time.

“Let just absorb that for a second and think about the impact for 650,000 Arkansans,” Hutchinson said during the brief ceremony at the Governor’s Conference Room at the State Capitol. “This is a boost to the economy because those Arkansans will spend that money and … it gives us a more competitive (income) rate.”

In brief speech before he gathered for a photo-op with the bill sponsors and host of other lawmakers that included House Speaker Jeremy Gillam, R-Judsonia, and Senate Pro Tempore Jonathan Dismang, R-Beebe, Hutchinson said he believed his plans were the best route to making the state’s tax code more competitive.

“This is the most conservative and responsible tax cut that we can have and continue down the path of lowering our rates,” he said. “This was $50 million, but there were many that wanted higher tax cuts. There were many other different tax bills and we focused on this and said: ‘This is what we can afford and we will put it in the second year of the biennium so we are making sure we are responsible in our path toward path cuts.”

GOVERNOR COMFORTABLE WITH STATE REVENUE PICTURE
In response to questions about rising concerns about the state’s muddled revenue picture and rumors that Friday’s revenue report could show a decline, Hutchinson said he was comfortable with the state’s economic and fiscal picture.

“In terms of the state budget, because projections are not as scientific as we would like and there’s an art form there, you always want to be somewhat cautious and I am mindful of the history of Arkansas and the importance of a balanced and conservative budget,” Hutchinson said. “For all those reasons, I said let’s take a conservative approach to it this year (with) $50 million. We all felt comfortable with it.”

On Friday, Hutchinson and the legislature will get the first snapshot of the state’s financial health since the legislative session began nearly a month ago when the state Department of Finance and Administration (DF&A) releases the January revenue report.

Along with the $100 million middle-class tax cut that was part of Hutchinson’s first 30 days as governor in 2015, the governor has pushed through the legislature more than $150 million in tax breaks for Arkansas workers.

The second plank of the governor’s plan for the 2017 session, a $13 million income tax exemption for military retirees and their families, is also expected to be approved and enacted into law within days following fierce debate in House and Senate chambers earlier this week as some lawmakers questioned the wisdom of taxing other consumers to pay for the patriotic-themed legislation.

That legislation has been at the center of state tax policy debate at the Capitol as lawmakers prepared to approve a 34-page amended bill that will levy new or additional tax hikes on unemployment benefits, soft drinks and candy, and digital downloads for books, movies, DVDs and ringtones to pay for the military tax exemption. The most controversial part of the legislation, however, is a $13.4 million syrup tax cut that sponsors admitted was inserted into the military tax exemption to make the bill revenue neutral.

Hutchinson said he supported the amended legislation because he wanted to make sure it was paid for.

“There were some that were saying ‘we don’t like to have those offsets and we don’t like to have them paid for – we just want to absorb that into our budget,’” he said. “That is not a conservative responsible (policy), and we took our approach and we feel very comfortable with it, and without a doubt we can absorb this and these (tax cuts) will be economic drivers for our state.”

SENATOR WORRIED ABOUT TAX CUTS MOVING BEYOND REALITY
Sen. Jake Files, R-Fort Smith, the chief architect of the amended bill that sponsors touted as a way to lure working-age, military retirees to Arkansas, has posited those last-minute changes were necessary so the legislature would not have to blue-pencil the budget, similar to the 1% across-the-board cuts state agencies saw in the 2015 session.

Files on Wednesday told Talk Business & Politics he is concerned about tax-cutting policy getting beyond revenue reality. He said he is eager to cut as many taxes as possible, but says “such cuts should not be premature.” He also said he hopes for a process that can bring in more stakeholders from around the state to make tax decisions based on future-leaning policy decisions rather than just making political decisions “that simply seek to balance revenue and expenses at the end of the year.”

During discussion in the first week of the session in the Senate Revenue and Tax Committee, which Files chairs, the state’s top economic forecasters said they were confident lagging tax collections in the first half of fiscal 2017 would continue improving and enable lawmakers to fully enact the governor’s $50.5 million tax cut proposal.

Going into the session, the Department of Finance and Administration reported net available revenue in December totaled $467.4 million, $3.2 million, or 0.7% above last year, and $1.8 million, or 0.4% above the estimate. According to DF&A, the executive recommendation calls for an upward revenue revision of 2.9% when compared to the fiscal 2017 forecast, which would bring in an expected $153.5 million in additional funding for the year.

Overall, the governor’s $5.5 billion budget proposal calls for a 2.8% increase in general revenues in fiscal year 2018, up $149.1 million, and a 4.9% increase in fiscal year 2019, up $266 million. That budget plan calls for a robust 4.4% increase in general revenues in fiscal year 2019 of $5.7 billion, up $964.6 million from fiscal year 2018.

BLUE RIBBON PANEL TO TAKE ON TAX CODE
Under the emergency clause of Act 79, the governor’s tax cut plan would take effect just ahead of the next General Assembly in January 2019 and a Blue Ribbon task force to reform taxes would begin holding scheduled meetings within 30 days after sine die adjournment of the 2017 session.

The legislative work group, which would include 16 members of the legislature or their designees, would be tasked to file a preliminary report with the governor, House Speaker and President Pro Tempore on the task force’s activities, findings and recommendations by the end of 2017. A final draft of the task force recommendations must be completed by Sept. 1, 2018.

Files and Sen. Jim Hendren, R-Gravette, the primary sponsor of the governor’s tax cut plan, have said the Blue Ribbon panel should put a 5-year sunset provision on all tax exemptions. According to a 2012 Department of Finance and Administration analysis, tax exemptions amount to hundreds of millions of dollars or more than $1 billion, depending on interpretations.

The discussion on state tax policy is highlighted by several reports showing Arkansas’ tax code near the bottom nationally on a number of fronts. On Tuesday, the Washington, D.C.-based Tax Foundation, said Arkansas ranks near the top among states with the highest average of combined state and local sales tax rates. A new map from the Tax Foundation ranks all 50 states and Washington, D.C., by their highest average combined state and local sales tax rates.

Louisiana leads the nation with a rate of 9.98%, followed by Tennessee (9.46%), Arkansas (9.30%), Alabama (9.01%), and Washington (8.92%). The five states with the lowest average combined rates are Alaska (1.76%), Hawaii (4.35%), Wyoming (5.4%), Wisconsin (5.42%), and Maine (5.5%).

According to the report, 45 states and the District of Columbia impose statewide sales taxes on their residents, but 38 states also allow local governments to collect additional taxes that can push the tax rate up even further.