By JOHN HOFHEIMER
Leader senior staff writer
Gov. Asa Hutchinson’s $50 million proposed tax cut, which would take effect Jan. 1, 2018, is more than the tip of the iceberg, but still not the whole picture.
Hutchinson is among the supporters of a proposed $13 million state tax cut for retired veterans, being sold as “doing what’s right” for retired vets and also as an economic development tool to keep them here or attract them from other states, according to two local lawmakers promoting the cut.
State Rep. Bob Johnson (D-Jacksonville) and state Sen. Jane English (R-North Little Rock) are the lead sponsors for one such bill, which would exempt military retirement pay for Arkansas veterans.
Little Rock Air Force Base is located in Johnson’s House district and English’s Senate district.
Sen. Charlene Fite (R-Van Buren), Sen. Missy Irvin (R-Mountain View) and Rep. Scott Baltz (D-Pocahontas) are sponsoring a similar bill toward the same ends.
Currently, veterans areeligible for the same $6,000 exemption as other retirees.
ECONOMIC IMPACT
The economic development impact of Little Rock Air Force Base is about $800 million a year and retired Col. Don Berry of the Arkansas Veterans Coalition says the economic impact of retaining and attracting military retirees across the state could be about the same.
This exemption, consistent with the governor’s approach to additional tax reductions, must be offset with the repeal of other tax exemptions.
Remove the exclusion from income on unemployment compensation, which would create $3.1 million in additional General Revenue.
Apply the sales tax on full cost of manufactured housing, which would create $2.4 million in additional General Revenue.
Levy the full sales tax on sale of candy and soft drinks. (Candy and soft drinks are currently taxed at a lower rate under the Grocery Tax.) This proposed change would bring in $13.8 million in additional General Revenue.
In all, closing exemptions would add $19.3 million to state revenues. It would provide $6.3 million for the Medicaid trust fund, leaving it intact.
Gov. Hutchinson would cut $50 million in taxes, mostly from the poor and lower middle class, in his proposed 2017 budget, but some say those cuts would be at the expense of unmet needs and services that would be helpful to low-income and others.
The state needs to expand the pre-K program and transition the juvenile justice system from a lockup model to a community-based model, according to Rich Huddleston, executive director of Arkansas Advocates for Children and Families.
This tax cut would make nearly $300 million since the 2013 funding year. Most of the cuts in the two previous budgets were for middle and high-income people and business.
The total price tag for the tax cut is $50,517,296—the bulk of which, approximately $46 million, will substantively affect an estimated 657,000 Arkansans. Of that 657,000 (44 percent of the roughly 1.5 million individual income taxpayers in the state), approximately 120,000 taxpayers in the lowest bracket will be taken off the tax rolls completely.
Hutchinson’s proposed income tax cuts are expected to decrease the burden on Arkansans earning less than $20,999 breaks down like this:
Those earning up to $4,299, currently taxed at 0.9 percent will be taxed at 0 percent, a tax cut totaling $22,283,558. Those in the $4,300 to $8,399 range, currently taxed at 2.4 percent, will be taxed instead at 2 percent, a revenue reduction of $7,508,244.
Those in the $8,400 to $12,599 range, currently taxed at 3.4 percent, would pay only 3 percent, a revenue reduction of $5,617,899; and those in the $12,600-$20,999 range, currently taxed 4.4 percent will be taxed at 3.4 percent—that’s a revenue deduction of $10,898,058.
$50 TAX BREAK
By way of example, a person earning $12,599 would currently pay $427 in state taxes, while at the reduced rate, the tax would be $378—a savings of about $50.
Huddleston said a state earned-income tax credit plan would be more helpful to the low income.
A single person earning less than $11,000 year already doesn’t pay state tax, he said, or a couple earning less than $19,000. With an earned income credit, they could actually get some cash back.
“We are sincerely appreciative that the majority of this tax cut is to low income people,” said Rich Huddleston, executive director of Arkansas Advocates for Families and Children.
Other Republicans are going to push him for larger tax cuts, mostly aimed at businesses and wealthy people, Huddleston said. “He’ll be facing bigger challenges in his own party. Still it’s a big chunk of change,” he said.
Hutchinson said the state has so many unfunded needs, like further expansion of pre-K schooling, reforming its juvenile prison system and paying more than the bare minimum for highway and other infrastructure projects.
