LITTLE ROCK — Less than five months after approving about $160 million in tax cuts over the next three years, lawmakers were back at it Tuesday, discussing those just passed and the possibility of more to come.
“At the end of the day in 2015 we’ve got to come back with a package,” said Sen. Jake Files, R-Fort Smith, chairman of the Senate Committee on Revenue and Taxation, during a a joint meeting with the same House committee.
“I think it’s important for us in the interim to do the work that would lead up to a foundation for that package,” he said.
During the meeting, Richard Wilson, assistant director of the Bureau of Legislative Research, discussed the various tax cuts approved during the 2013 legislative session. He said the cuts would be phased in, with nearly $12 million in cuts occurring this fiscal year and $161.124 million by 2015-2016.
Among the tax cuts approved by the Legislature and signed into law by Gov. Mike Beebe, was a reduction of the state income tax in all tax brackets by one-tenth of 1 percent. The cut for the lowest bracket would go into effect Jan. 1, 2014, and the cut for the rest of the brackets would go into effect Jan. 1, 2015.
An increase in the capital gains tax threshold to 50 percent of gains also was approved during the session. The proposal includes an exemption for capital gains that exceed $10 million.
In response to a question, Wilson said the $160 million in tax cuts projected by 2016 does not include a reduction in the state sales tax on groceries, also approved by the Legislature this year.
That tax cut, which would reduce the rate from the current 1 1/2 cents on the dollar to one-eight of a cent occurs only if certain economic triggers are met, Wilson said.
The cut in the sales tax on groceries would take effect when certain budget obligations, including desegregation payments to three Pulaski County school districts and payments on certain bonds, decline by at least $35 million for six consecutive months.
Wilson said the fiscal impact of that tax cut is about $70 million, but added it is difficult to say when the desegregation payments will end.
During Tuesday’s meeting, Wilson also presented lawmakers with a chart showing the various income tax rates and brackets, and what effect a phase out of the income tax would have at .2 percent a year and at .3 percent a year.
The chart showed that a .3 percent annual reduction would eliminate the income tax for people in the lowest income bracket, $5,000 or less annually, by 2018. People in the highest income bracket, $34,000 and up, would see their income taxes eliminated by 2038.
Rep. David Meeks, R-Conway, said eliminating the state income tax like some neighboring states have done, including Texas and Tennessee, would spur investment and economic growth in Arkansas.
Files cautioned not to consider each individual tax cut in isolation of the others.
“I’m somewhat curious as to how cutting our income tax rates by a tenth of one percent makes us more competitive with Texas, who has no income tax, but who has personal property taxes that are extremely higher than ours are,” Files said.
“I think we’ve got to figure out a balance and look at these things not in a vacuum … (but) look at the whole package,” he said. “I’m sure many of you think we’re overtaxes but there’s a price to pay for that as well.”
He also said the state will be electing a new governor in 2014.
“Regardless of party we’re going to have a new governor, so I think it’s even more imperative that this group right here and both chambers be knowledgeable about where we are financially and where we can be with future tax cuts and target those.
“I’d like to see us look and try to really target things and make Arkansas more competitive and more attractive for both people coming here and businesses coming here,” he said.