Grocery-tax review criticized
Hutchinson hails debate; challenger opposes talk of rise
The possibility of increasing the state’s sales tax on groceries has drawn opposition from Democratic gubernatorial candidate Jared Henderson, who said Tuesday that he would never go for such a change if elected.
Henderson said in a written statement that Republican Gov. Asa Hutchinson, who wants to cut the state’s top individual income tax rate, “stands silent as the General Assembly toys with the idea of making it more expensive for working families to buy groceries.”
Hutchinson countered that he has been a consistent supporter of eliminating the sales tax on groceries and his position hasn’t changed.
“This is the political season and it is expected that unfounded attacks will occur regularly, but it is disappointing that candidates are afraid of legislative review and debate,” the governor said in a written statement. The Legislature’s tax overhaul task force has made no recommendations, he noted.
In a divided voice vote last week, the Arkansas Tax Reform and Relief Legislative Task Force opted to take a closer look this summer at the option of raising the sales tax on groceries and creating either a refundable earned income tax credit or an income tax credit for people with low to moderate incomes to offset the increase.
The task force also decided that additional revenue raised by repealing any tax exemptions, as recommended by the task force, be used for future tax cuts.
In March, officials for the right-leaning Tax Foundation and left-leaning Institute of Taxation and Economic Policy, both in Washington, D.C., told the task force that the state would be better off providing a targeted income-tax credit to low-income families rather than charging a 1.5 percent tax rate on groceries.
The idea of increasing the grocery sales tax and creating a tax credit has divided both Democrats and Republicans.
The Jefferson County Republican Committee announced Monday that it unanimously voted last week to oppose increasing the sales tax on food. Committee Chairman Peter Smykla Jr. of Pine Bluff said he asked for the committee’s position to be included in the state Republican Party platform for consideration at the party’s convention in July.
“It is our opinion that the sales tax rate of 1.5 percent should remain the same, or preferably, be removed completely,” Smykla said in a written statement.
Hutchinson has signaled that he wants the 2019 Legislature to cut the state’s top individual income tax rate from 6.9 percent to 6 percent, which he projects would reduce tax revenue by about $180 million a year.
In 2015 and 2017, the Legislature enacted Hutchinson’s plans to cut individual income-tax rates for people with up to $75,000 a year in taxable income, which are collectively projected to reduce revenue by $150 million a year.
The tax overhaul task force is required to issue its recommendations to the General Assembly and Hutchinson by Sept. 1.
The sales tax on groceries is 1.5 percent. It is set to drop to 0.125 percent, effective Jan. 1, under a 2013 law that allows the use of the state’s savings from ending desegregation payments to three Pulaski County school districts to finance that tax cut of about $68 million a year.
From 2007 through 2011, the Legislature gradually reduced the grocery tax from 6 percent to 1.5 percent based on the recommendation of Democratic Gov. Mike Beebe, who defeated Hutchinson in the 2006 general election. The state Department of Finance and Administration has estimated that the 1.5 percent tax reduced revenue by $248.9 million in fiscal 2017, including $190.6 million in general revenue.
A task force co-chairman, Rep. Lane Jean, R-Magnolia, said last week the task force will look at three proposals — increasing the grocery tax to 3 percent, 4.5 percent or 6 percent — and creating either a refundable earnedincome-tax credit, for those who work, or refundable income-tax credit. The task force also will consider whether to subsidize a family with taxable income of $40,000 or under $30,000 a year.
Henderson of Little Rock said in his written statement that “raising the grocery tax should never even be up for discussion and as governor you can bet I would fight any attempt to raise this tax that hits our working families the hardest.”
He said that providing a refundable tax credit for low-income Arkansans to compensate for the increased grocery tax would make little difference at the cash register for families with a tight budget.
While noting he has consistently supported eliminating the grocery sales tax, Hutchinson of Rogers said in his written statement that “the final reduction of the sales tax is part of the budget I presented to the Legislature and was adopted by the General Assembly.” The remaining tax to which groceries would be subject, the 0.125 percent rate, is levied under the conservation sales tax amendment in the constitution.
Hutchinson is seeking re-election to his second four-year term this year.
Republican gubernatorial candidate Jan Morgan of Hot Springs has repeatedly panned the Legislature’s tax overhaul task force and said she opposes repealing any tax exemptions. Democratic gubernatorial candidate Leticia Sanders of Maumelle has said she favors a constitutional amendment to exempt groceries.
Sen. Jim Hendren, R-Sulphur Springs, who is a task force co-chairman and whose uncle is Hutchinson, said, “There is no effort to just raise the grocery tax and make a net tax increase.”
People with higher incomes benefit more from the reduced sales on groceries than people with low and moderate incomes, and creating a tax credit for people in lower income groups would target tax relief to those more in need, Hendren said.