Bill to cut top income tax rate in state clears House

Gov. Asa Hutchinson’s plan for cutting Arkansas’ top individual income tax rate passed in the House of Representatives with votes to spare Thursday, after uncertainty over the past week about whether it had adequate support.

The vote was 82-14 in the

100-member House. Nine Democrats voted for it, two Republicans voted present, and one Republican and one Democrat didn’t vote. The bill needed 75 votes to pass.

Senate Bill 211 by Sen. Jonathan Dismang, R-Searcy, which the Senate passed last week, now heads to Hutchinson’s desk to be signed into law.

A combination of factors, including the rollout earlier this week of Hutchinson’s plan to eventually raise $300 million a year for state highways, pushed support over the 75-vote threshold, House Speaker Matthew Shepherd, R-El Dorado, said after

Thursday’s vote.

From the House floor Thursday, proponents argued that the legislation would improve Arkansas’ business climate and make the state more competitive.

The members who spoke against the bill, including one Republican, said there are still unanswered questions and the cuts will take away from other pressing needs while mostly benefiting the top 1 percent of Arkansas taxpayers.

The Republican governor and legislative leaders praised the bill’s passage, noting the large vote margin.

“This was not easy, but the 82-vote margin in the House was a statement of overwhelming bipartisan support,” Hutchinson said in a statement. “Under this plan, no one will pay more in income taxes, and combined with the final reduction in the grocery tax, Arkansans will keep even more of their paycheck. We’ve accomplished these reductions without cutting services or programs that are essential to Arkansas. This is responsible government that is responsive to the needs of Arkansas.”

SB211 trims the top individual rate from 6.9 percent to 5.9 percent over a two-year period. State officials expect it to reduce tax revenue by $97 million a year after it’s fully implemented.

The bill, once enacted, will be the third tax cut since Hutchinson took office in 2015. The first reduced rates for lower- and middle-income earners.

The top rate now applies to those making at least $79,300 a year in 2018 taxable income. The Arkansas Department of Finance and Administration expects that figure to change to $80,500 when adjusted for inflation later this year.

In the middle-income table — for people earning between $22,500 and $80,500 a year — SB211 would create a top rate of 5.9 percent, rather than the current 6 percent. It would apply to the portion of income that is at least $37,500.

The Finance Department

estimates that 579,000 Arkansans would see income tax reductions under SB211.

House Minority Leader Rep. Charles Blake, D-Little Rock, spoke against the bill on the House floor Thursday, arguing that the tax cut overly benefits the wealthiest Arkansans. He also said it didn’t make sense to cut taxes and then refer an amendment to the 2020 ballot proposing a tax increase — a reference to Hutchinson’s highway plan that proposes permanently extending the state’s half-percent

sales tax through a ballot referendum.

“The state cannot afford the governor’s tax cut and then referring a half-cent sales tax out to the people,” Blake said in an interview. “I’m not inclined to say that the people are going to vote for that half-cent sales tax, so it leaves us in a sticky situation of having to fund highways and having to find resources to fund services.”

In addition to asking voters to make the half-percent sales tax permanent, Hutchinson wants lawmakers to approve a 3-cent-a-gallon increase in the gas excise tax and 6-centa-gallon increase in the diesel excise tax; increase registration fees for electric and hybrid vehicles; and dedicate at least $35 million in casino tax revenue, restricted reserve account funds or other general revenue for highways.

The permanent extension of the half-percent tax eventually would raise about $205 million a year for highways. The other measures would immediately raise about $95 million a year. Counties and cities also would receive about $114 million a year for their roads under this longterm highway funding plan.

A Senate bill sorting out the mechanics of the highway funding plan was filed Thursday with 21 co-sponsors, all but assuring its passage in that chamber. Shepherd said the broad Senate support for that bill likely reassured House members.

The highway proposal, the House speaker said, helped the House avoid a similar snag to the one that occurred last week in the Senate, which failed to pass SB211 on the first try. The legislation required a three-fourths majority because it would increase income tax rates in brackets on about 213,000 taxpayers, although they wouldn’t see an overall increase, according to state projections.

“If we had been unsuccessful today, it would’ve been a fairly significant speed bump as far as where we’re headed with the session,” Shepherd said. “You always worry when you have significant legislation like this. Sometimes if it gets hung up, it can kind of have a ripple effect and have some consequences and issues that arise with other pieces of legislation.”

Republicans Reps. DeAnne Vaught of Horatio and Laurie Rushing of Hot Springs voted present on the bill, and Rep. Julie Mayberry, R-Hensley, didn’t vote.

Rushing spoke against the bill on the floor, saying that she probably supports the bill but hadn’t received information she requested from the governor’s office. Vaught in an interview said several concerns kept her from supporting the tax cuts.

“There’s a lot of uncertainty,” Vaught said. “As far as teachers’ salaries, the minimum wage, you know how that’s going to affect our schools and in a lot of ways I think our schools are already inadequately funded. Not only that, but at some point I have to worry about my rural area, and essentially tax cuts end up hurting us.”

Nine of 24 House Democrats supported the bill.

Blake said last week that 21 members of the House Democratic Caucus were planning to vote against the plan. On Thursday, 14 Democrats voted “nay.”

“I would encourage you to ask each member what made them change their minds,” the Democratic leader said, adding that the governor had been “working members” of the caucus over the past week.

The highway plan won over Rep. LeAnne Burch, D-Monticello.

“The bottom line is my constituents are so concerned about the highways,” she said. “When I saw that the highway bill had been filed, and we were assured that there would be strong support for the highways, I believed that was a strong indicator that my vote toward the governor’s tax bill would be in the best interest of my constituency.

“I was frankly concerned that there would be worse things down the road” if a compromise on taxes was not reached, she said.

“I cannot get over the fact that $74 million” of the tax plan goes to the state’s top earners, Burch said. “I also know that earners in that category help employ people and do good things.”

Several Republicans also decided to support SB211 after saying last week that they planned to vote against it. Rep. Charlene Fite, R-Van Buren, said Hutchinson addressed her concerns over funding for senior-citizen centers, and Rep. Michelle Gray, R-Melbourne, said the highway plan eased her concerns.

“I didn’t want to essentially reduce general revenue by over $90 million unless I knew we had the funds to cover [it], or at least a plan in place for highways,” Gray said.

SB211 would cut the top rate to 6.6 percent, effective Jan. 1, 2020, and then to 5.9 percent, effective Jan. 1, 2021.

The measure also would cut the number of rates in the upper-income tax table from six to four, effective Jan. 1, 2020, and from four to three, effective Jan. 1, 2021.

Examples of the cuts in this plan would be $12 for a person with net taxable income of $50,000; $37, income of $75,000; $59, income of $80,501; $253, income of $100,000; $503, income of $125,000; and $753, income of $150,000, according to the governor’s office.

The tax cut in this plan would be $1,750 for a person with net taxable income of $250,000; $4,250, income of $500,000; $6,750, income of $750,000; and $9,250, income of $1 million, after it’s fully implemented, according to the finance department.

The tax cuts are expected to reduce revenue by $25.6 million in fiscal 2020, $48.5 million more in fiscal 2021, and $22.9 million more in fiscal 2022, according to the finance department’s fiscal impact statement on the bill.

Currently, Arkansas has the highest top marginal individual income tax rates among surrounding states, according to the Tax Foundation. Texas and Tennessee have no income tax; Oklahoma’s top rate is 5 percent; Louisiana’s is 6 percent; Missouri’s is 5.9 percent; and Mississippi’s is 5 percent.

In a statement, Hutchinson said the tax cuts that passed Thursday in the House bring the amount of income tax cuts under his administration to about $250 million, affecting all Arkansas taxpayers.

“The immediate benefit of these historic reductions is that Arkansans keep more of their paychecks,” Hutchinson said. “The long-term benefit to all Arkansans is that the lowered tax rate puts us in the same bracket with most of our neighboring states, which is significant to CEOs who want to move into other states.”