Tax cut proposal ready for final votes in Arkansas Legislature
Legislation that accelerates state tax cuts appears to be heading toward final approval. Identical bills were passed Wednesday by the Arkansas House and Senate.
Prior to approving the legislation, lawmakers debated its effect on inflation. During debates, concerns were raised on whether the tax cuts would provide enough relief for lower income earners and the legality of the legislation.
Following both chambers approving their bills on Wednesday, the House and Senate are expected to vote on each another's bill on Thursday. Once approved, the legislation will go to Gov. Asa Hutchinson, who urged lawmakers to speed up implementation of the cuts.
“This has been a good day for the taxpayers of Arkansas with the passage of the $500 million tax relief bills in both the House and Senate with $400 million going to individuals this year," Hutchinson said in a statement late Wednesday afternoon. "I am grateful for the overwhelming support of the General Assembly, and it could not come at a better time with the continued challenge of high food and gas prices."
Speaking on the House floor, Rep. Andrew Collins, D-Little Rock, argued lowering the top income tax rate would have a negative effect on the state’s economy.
“It will increase inflation because we’re pumping more money into the economy, same as the stimulus. It’s a stimulus mostly for the rich and it sends a message to our constituents who are crying out to pay our teachers — that instead we care more about tax cuts for the wealthy,” Collins said.
Republican Rep. Joe Jett of the Northeast town of Success, the bill’s sponsor and chair of the House Revenue and Taxation Committee, said he believes the tax cuts would benefit the majority of Arkansans.
“Everybody who’s going to make above $23,600 is going to be in that 4.9% bracket. They get the benefit of this. Somebody go out in the public here in Arkansas and find somebody that’s making $23,600, and you ask them if they’re wealthy,” Jett said. “$23,600 is not a lot of money. I couldn’t live on it.”
Some lawmakers argued using the state’s $1.6 billion budget surplus for tax cuts was prohibited because of language in the federal American Rescue Plan Act (ARPA). Jett quoted U.S Treasury Secretary Janet Yellen in saying those concerns are unfounded.
“Nothing in the act prevents states from enacting a broad variety of tax cuts; that is, the act does not deny states the ability to cut taxes in any manner whatsoever. It simply provides that funding received under the act may not be used to offset a reduction in tax revenue,” Jett said.
Collins argued the tax cuts could potentially increase inflation, and would not have the economic benefits Republicans have predicted they would have.
“You think $2,000 for a millionaire is going to prompt him to hire a bunch of employees or expand his business or change his spending habits or pay his employees a living wage? You think $2,000 will prompt businesses to locate here in Arkansas?”
Prior to the vote, Senate Minority Leader Keith Ingram, D-West Memphis, who supported the tax cuts last year, raised concerns about the push to accelerate them. He said his worry is losing ARPA funds, a possibility that was brought to the attention of lawmakers by the Department of Finance and Administration.
“Why would we risk losing $800 or $900 million in ARPA funds that will be used to fix the infrastructure problems that we’ve struggled with for years,” Ingram said. “That $900 million can go a long way in providing broadband for the rest of the state.”
Sen. Alan Clark, R-Lonsdale, voted to accelerate the tax cuts but agreed with Ingram.
“I think the tax cuts are a good thing. I think the risk, as a businessman, makes no sense whatsoever,” Clark said. “Why would we risk [ARPA funds] makes no sense to me.”
Finance officials have said the amount taken back by the federal government could range from less than $100 million to $800 million. Sen. Jonathan Dismang, R-Beebe, said he is confident the funding won’t be rescinded.
“It was kind of questioned whether what we’re doing is legal. There is no question about the legality of passing tax cuts in the state,” Dismang said.
Last year, Arkansas Attorney General Leslie Rutledge joined the state as a plaintiff in the lawsuit that was filed suing the U.S Treasury to stop the federal government from rescinding COVID-19 funds used for tax cuts. Dismang said the state could find out in September whether funds will be rescinded.
Dismang added inflation is the reason for the spike in tax collections and the cuts are a way to provide relief for those struggling with it.
Sen. Joyce Elliott, D-Little Rock, said the special session shows who is a priority and who isn’t.
“We’re going to start school and not have teachers. When we start school we will have practically in some cases people in some areas having a hard time having a home, living in places that aren’t food deserts or won’t have decent roads,” Elliott said.
Sen. Linda Chesterfield, D-Little Rock, said it was egregious that the low-income tax credits aren’t recurring. She added there are lower earners who don’t pay taxes and they won’t receive the tax credit.
Dismang addressed criticism from Democratic lawmakers who said the tax cuts didn’t provide relief for low and middle income earners.
“We put [low and middle income earners] in the front of the line. Their tax cuts took effect on Jan. 1, 2022 to the tune of $160 million worth of cuts. We eliminated taxes for 500,000 Arkansans when we did that,” Dismang said.
He added the acceleration of the tax cuts will help another 95,000 Arkansans.
After approving the tax cuts, the Senate also approved setting aside money for a grant program aimed at helping schools improve safety.
There will be $50 million dollars placed in a reserve fund for the grant program. Dismang noted the specifics of the program have not been worked out.
“We do believe school safety is a priority. While we are in session, there will be an agreement so when those plans develop it can be released to provide help to our school districts,” Dismang said.
During the budget meeting Tuesday, Dismang explained the Arkansas Department of Education and governor’s office would set rules for the program and the Arkansas Legislative Council will approve the rules. Hutchinson has said he wants to follow the recommendations of the Arkansas School Safety Commission, though the commission’s final report won’t be published until October.
Details of the tax cuts
The tax cuts will set the top individual income tax rate at 4.9 percent and be retroactive to the beginning of the year. Lawmakers have said this would allow tax payers to see less money withheld in their paycheck. The corporate income tax would be lowered to 5.3 percent. The legislation also increased the tax deductible used by businesses for equipment to match federal law. For low and middle income earners, a $150 to $300 dollar income tax credit is in the bill.
Extending the session
Democrats are hoping to extend the special session to allow consideration of bills to raise teacher pay and expand exceptions for abortions. Lawmakers are determining how to best spend a $1.6 billion budget surplus.
Rep. Megan Godfrey, D-Springdale, said raising teacher salaries should not wait until next year’s regular session because many are quickly leaving the profession.
“Our teachers are building a brighter Arkansas for all of us. Raising teacher pay is one of the best ways we can show our appreciation, improve recruitment and retention and compete with the higher teacher salaries in surrounding states,” Godfrey said.
Another bill Democrats want considered follows the Supreme Court’s recent ruling that abortion is not a protected right. The state’s trigger law immediately banned the procedure except to save the life of the mother. Rep. Nicole Clowney, D-Fayetteville, says that needs to be changed.
“We’re hearing from women and health care providers about the urgent need for exceptions in Arkansas’ extreme abortion bans. The law as it stands today provides no exceptions for rape or incest, lethal fetal anomaly or health of the mother,” Clowney said. “Further, without rape or incest exceptions, Arkansas’ current abortion law is in conflict with federal medicaid rules putting us at risk for losing billions in federal funding.”
Extending the session beyond what was on the call from Gov. Hutchinson will take a two-vote from lawmakers. Sen. Clarke Tucker, D-Little Rock, acknowledged the challenge his party faces in its attempt to extend the session.
“When all of the items on the governor’s call have been handled, we’re hopeful but not confident that we’ll get the two-third vote in each chamber to extend the session,” Tucker said.
According to the National Conference of State Legislatures, Arkansas reimburses lawmakers for each day of a legislative session – $55 a day for legislators that live within 50 miles of the capitol and $151 a day for legislators living more than 50 miles from the capitol.