Tax-paring will need study, legislators say
Previous commitments made, one says
HOT SPRINGS — Republican legislative leaders said Thursday that they want more information about Gov.-elect Asa Hutchinson’s plan to cut state income taxes by $100 million before deciding whether Arkansas can afford it.
A day after Hutchinson asked Arkansas Farm Bureau members to help him enact his tax-cut plan during the legislative session that starts Jan. 12, bureau board member Joe Christian of Jonesboro asked House Speaker-designee Jeremy Gillam, R-Judsonia, and Legislative Council co-chairman Sen. Bill Sample, R-Hot Springs, “Where is the money going to come from?”
Hutchinson has said his tax-cut plan would reduce state general revenue by $50 million in fiscal 2016 and $100 million in fiscal 2017, and be paid “out of our growth [in state general] revenue.”
But departing Democratic Gov. Mike Beebe has recommended that lawmakers delay implementation of two tax cuts approved in 2013 that are projected to reduce tax revenue by $29.4 million in fiscal 2016 and $24.5 million in fiscal 2017. Those cuts
would reduce the sales tax on natural gas and electricity used by manufacturers, lower income taxes on capital gains and increase the standard income-tax deduction.
Beebe and Hutchinson have disagreed on whether Hutchinson’s tax-cut plan would affect essential state services, such as nursing homes, colleges and prisons.
In response to Christian’s query, Sample said, “we have several [tax-cut] measures that are ongoing and haven’t been fulfilled, so I think that before this $100 million tax cut, we have to continue to look at them and honor them.”
Sample sponsored Act 1411 of 2013, which cuts the sales tax on natural gas and electricity used in manufacturing.
“I would certainly hate to stop [the sales tax cut on manufacturers’ natural gas and electricity use] and have a manufacturing firm move into the state expecting that and pull that away from them,” Sample said during the Arkansas Farm Bureau’s 80th annual convention, held in Hot Springs.
“I really feel that we need to fulfill the commitments we have made and [then] look at the new stuff,” he said. “We can always pass stuff and have it start down the road. … But we have got to be mindful of where the money comes from, how it is going to affect us — not [only] this year but 10 years down the road.”
Beebe has recommended delaying cutting the manufacturers’ utility sales tax rate from 1.625 percent to 0.625 percent from July 1, 2015, to July 1, 2017. Delaying the tax cut would increase state general revenue by $6.1 million in fiscal 2016 and $5.2 million in fiscal 2017, according to the state Department of Finance and Administration.
He also has recommended delaying the increase in the individual income tax standard deduction from $2,000 to $2,200 per person and the increased capital gains exclusion from the income tax from 30 percent to 50 percent from July 1, 2015, to July 1, 2017. Delaying these tax-cut provisions would increase state general revenue by $23.3 million in fiscal 2016 and $19.3 million in fiscal 2017, according to the Finance Department.
Gillam said the Legislature has 135 members “who would like to engage in cutting taxes.
“Some of us have more of an agricultural mindset. We want to cut taxes that way. Some people want to focus on the income tax, and some want to look at the sales tax. Everybody has got their proclivities,” said Gillam, who is a farmer.
“But we have to make sure that the data is there to show that we can do it now and also the future is not going to be negatively impacted as well.”
Gillam said he expects Hutchinson to “present data that will show the path forward if he pursues [his tax-cut proposal] and brings a plan to us. And, if it works, then I think you’ll see a lot of support for it if the data is there.
“I think we all want to go that direction,” he said. “We have to do that in a prudent manner and make sure that it fits not only what we are doing now but in the future.”
Hutchinson spokesman J.R. Davis said Hutchinson will present his budget for fiscal 2016 during the legislative session.
“Arkansans made it overwhelmingly clear on election night that they support his plan to lower taxes on our state’s middle class, and they voted in the people they expect to help execute that plan,” Davis said.
“Certainly the legislators will need to see more details on the plan and budget, and Gov. Hutchinson looks forward to working with the legislators on the specifics.”
As far as the length of next year’s legislative session, Gillam said his goal is to have the Legislature meet for 85 days.
“For me, I have to get back to the farm. My brother doesn’t like talk about these talks of 90- and 100-day [sessions]. He is ready to get me back and put me to work,” he said.
Sample said he agreed with Gillam’s goal.
He said the Legislature must decide the future of the state’s private-option program in a way that “doesn’t take and lock us up and have us [in session] for 120 days or more.”
Under the private option, the state uses federal Medicaid dollars to purchase private health insurance for low-income Arkansans.
In 2013 and 2014, funding for the program narrowly cleared the 100-member House and 35-member Senate with the required threefourths super-majority.
But last month’s election of several Republicans who campaigned against the program and who will replace several Democrats who have supported it, has prompted Senate President Pro Tempore Jonathan Dismang, R-Searcy, to concede that the private option won’t survive in its current form.
The current program extends insurance coverage to adults with incomes up to 138 percent of the poverty level — $16,105 for an individual, for instance, or $32,913 for a family of four. More than 187,000 Arkansans have been enrolled in private health insurance through the program, according to the Department of Human Services.
Federal Medicaid funds pay for 100 percent of the program until fiscal 2017, when the state will pick up 5 percent of the cost. The state’s share of the tab will gradually increase to 10 percent in fiscal 2020.
The state is financing $85 million in tax cuts in fiscal 2015 from the state’s private-option savings derived from reduced uncompensated care costs, according to state officials.
Hutchinson has said he would decide by the end of January whether he’s going to ask the Republican-controlled Legislature to reauthorize the private option.
Sample said he’s heard from other legislative leaders that “we are going to start on [private option] either at the first of February or last of January to try to go ahead and see where we are at and try to get a feel of how the membership feels about it.”
It’s “very important for us to try to make that program go forward,” he said.
“I know that we will face opposition and, if the opposition will show us a plan, we’ll try to work it out,” he said. “The people on the program deserve consideration, and that consideration is not just dropping the program.”
Gillam said he has been focusing on the private-option’s budget.
“You have the real-world human impact of the individuals involved, but you also have a financial impact on the hospitals,” he said.
“The path forward we are going to take with the private-option and health care issues generally have to be done in a prudent manner to where the [state] budget works. When our 5,6, 7, 8, 9 and 10 percent [share of the private-option’s cost] start kicking in, that’s real serious money,” Gillam said.
“You have to make sure it is there because you don’t want to have to cut central [state government] services and cutting everything else and closing extension offices and everything else just because you didn’t have enough foresight to plan,” he said.