LITTLE ROCK — Proposed cuts to the state income tax and the capital gains tax that by fiscal year 2017 would total nearly $85 million received endorsements Tuesday from the House Revenue and Taxation Committee.
House Bill 1585 by Rep. Charlie Collins, R-Fayetteville, would raise the minimum income level for the top state income tax bracket from $34,000 to $44,000 a year and reduce the tax rate for that group from 7 percent to 6 7/8 percent. The bill is estimated to cost the state $57 million a year.
Collins said the top income tax rates of the states surrounding Arkansas range from 6 percent to zero in states that have no income tax.
“That still leaves Arkansas with the highest top bracket in our area, but it’s a step in the right direction and it begins to communicate to job creators and individuals who are looking to start businesses and other things that Arkansas is going to move in a bit of a different direction,” Collins said.
Among those testifying against the bill were Rich Huddleston, executive director of Arkansas Advocates for Children and Families, and Bill Kopsky, executive director of the Arkansas Public Policy Panel. They said the bill would constitute a tax break for the highest-earning Arkansans and would do nothing to help people at the lower end of the economic scale.
Tim Leathers, deputy director of the state Department of Finance and Administration, also testified against the bill, saying there was no room for it in the governor’s balanced budget proposal.
Also endorsed by the committee was HB 1966 by House Speaker Davy Carter, R-Cabot.
The bill would increase the tax exemption for net capital gains on existing Arkansas investments of more than $5 million from 30 percent to 70 percent. It would create a 70 percent exemption for capital gains on all Arkansas investments made Jan. 1, 2014, or later.
Leathers, who testified against the bill, said it would cost the state $3.1 million in fiscal 2014, $10 million in the second year, $18.3 million in the third year and $27.9 million in the fourth year.
Leathers also said the bill could expose the state to legal liability. He said Oklahoma was sued over a similar measure, and the Oklahoma Civil Court of Appeals ruled that Oklahoma’s law violated the commerce clause of the U.S. Constitution by treating in-state economic interests differently from out-of-state competitors.
Kopsky and Brett Kincaid of Arkansas Advocates for Children and Families also testified against the bill, which they said was another tax break for the wealthy. Kopsky said the bottom 20 percent of Arkansas wage earners already pay about twice as high a percentage of their income in taxes as the top 1 percent pay.
“Low-income people are going to be paying even a higher percentage of the tax burden in Arkansas, and the wealthy will be even paying less of a burden than currently,” he said.
Carter said he was not convinced that Leathers was correct in his interpretation of the commerce clause, but he was willing to amend the bill to address those concerns.
“We have to have job creators in this state, and I respectfully submit that passing the law will help advance job creators in Arkansas,” he said.
House and Senate leaders have said they expect to pass a package of about $100 million in tax cuts this session. Carter has said he considers his bill to be separate from that package.
Also Tuesday, the committee voted to table HB 1240 by Rep. Fred Love, D-Little Rock, which would create an earned income tax credit for low wage earners. The bill is estimated to cost the state $40 million a year.