The governor’s tax shift

Tax cut helps wealthy; highway plan burdens everyone

The battle over Gov. Asa Hutchinson’s proposed income tax cuts for the wealthiest Arkansans has moved from the state Senate to the House of Representatives.

The plan, which will cost the state $97 million in revenue, stalled temporarily in the Senate but finally won endorsement on a 28-5 vote last week.

Its passage was always going to be a heavy lift, given that it requires a three-quarters vote in both of legislative chambers (at least 27 of 35 votes in the Senate and 75 of 100 in the House).

The Senate hang up, even if short-lived, happened because some senators were reluctant to cut any taxes without some plan to pay for highway improvements. By the next day, enough of them were convinced that a highway plan was in the works that they passed the income tax cuts out of the Senate.

Sure enough, on Monday, Gov. Hutchinson, flanked by legislative leaders and key supporters, offered up a $300 million highway spending plan that will require extension of a sales tax, increases in fuel taxes and dedication of expected new revenue to highways.

The highway plan’s mere existence may ease the way for House action on the governor’s proposed income tax cut, which is Hutchinson’s priority for this session.

Hutchinson called the highway plan affordable, prudent and reasonable, touting it as the largest highway program in state history.

A huge piece of the plan — permanent extension of a half-cent sales tax scheduled to expire in 2023 — would have to be approved by voters in 2020 before it can take effect. That tax would account for nearly $206 million of the $300 million program each year.

Lawmakers would have to approve the fuel tax hikes (3 cents per gallon on gasoline and 6 cents per gallon on diesel fuel) this session. Lawmakers would also have to earmark additional license fee receipts on hybrid and electric vehicles for highways and approve dedication of at least $35 million in tax revenue from casinos to highways.

That last piece may also require the use of state restricted reserve funds to make up any shortfall in casino-related revenue before planned new casinos open in three of the four counties where voters authorized them in last year’s general election.

Also, all of the new road revenue, if approved, won’t go to the state highway system. Cities and counties collectively would share an additional $114 million a year.

The package is an expensive remedy to a nagging problem with highway funding in Arkansas.

Its apples-to-oranges presentation in the midst of the fight for more income tax cuts is downright mind-boggling.

To visualize what is happening here, imagine on the one hand an income tax cut that benefits the wealthiest Arkansans and, on the other hand, making permanent a sales tax and raising fuel taxes to be paid by most Arkansans.

The hikes won’t happen immediately, but eventually all Arkansans will be pay $300 million a year more for highways while these wealthiest Arkansans pocket $97 million in reduced yearly income taxes. Of that amount, $73.6 million will reportedly go to 14,000 Arkansans earning $456,000 or more a year.

While the state’s working poor are scratching for more pennies to fuel their vehicles, that comparative handful of wealthier Arkansans will enjoy millions in lowered income taxes.

For the record, the Hutchinson administration in years past pushed for and got income tax cuts for Arkansans in lower-income brackets. This latest proposal, he argues, is about making Arkansas more economically competitive with surrounding states.

Nevertheless, the concern with all these tax cuts is how they impact overall revenue to the state’s general fund. The question is whether the state can meet all of its obligations to education, public health, public safety and more with a what could be a whittled-down general fund even as it pumps up highway funding.

That’s the mind-boggling part. The state’s general revenue is apart from highway funding, or used to be. This new plan would, however, tap casino revenue for highways when some or all of that might have been used to shore up general fund needs.

If there is consensus behind the highway plan, that casino avenue for growth revenue in the general fund will be gone.

So will those millions from income tax cuts, assuming lawmakers ultimately endorse that plan, too.

At this juncture, that seems to be where they are headed — whether or not it is affordable, prudent or reasonable.

Brenda Blagg is a freelance columnist and longtime journalist in Northwest Arkansas. Email her at brendajblagg@gmail.com.