Slowed by Tuesday’s ice, Democratic gubernatorial candidate Mike Ross today unveiled what he called the first major policy initiative of his campaign — a whopping income tax cut that fundamentally reshapes the state income tax into its originally intended progressive form.
Fully implemented, it would cut current income taxes by more than a half-billion dollars. It would do this by indexing the current income tax brackets, first established in 1971 and adjusted modestly for inflation in 1991, to inflation. Simply put, where the top 6.9 percent bracket now applies at $34,000 in income, it would apply at $75,100.
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There’s a catch. Ross proposes to implement the cut using natural growth in revenue. This could take a span of years, nobody can say exactly how many. He notes that it’s taken Mike Beebe eight years to deliver on about 80 percent of the $1.085 billion that elimination of the sales tax on groceries ultimately will produce in tax cuts.
Ross contends it’s the prudent and responsible course, compared with Republican Asa Hutchinson’s plan to have an instant $100 million cut by rolling back
all tax brackets for incomes between $20,000 and $75,000, by 1 percent. As we wrote earlier, Hutchinson’s plan also includes, rather than a progressive rate across income lines, bracket “cliffs” at each income bracket. This could put some people on the margins of new income tax brackets with an added tax burden rather than a cut. (We explain this weird feature here.)
Apart from the bracket quirks, Ross argues with Hutchinson’s larger strategy of devoting surplus to the tax cut and hoping future state performance will continue to pay for it. (We are currently on edge to see if state revenue can pay for the latest round of tax cuts, particularly if Republican insurgents defeat continuation of the private option health insurance the windfall of federal money it brings. Hutchinson has yet to declare where he stands on the private option. Ross says he supports it.)
Ross notes responsibly that the state has other needs in addition to tax equity — prisons, schools, pre-K education, for example. He won’t propose to use all growth revenue — estimated at $100 million in fiscal 2015 — for tax cuts for that reason. He’ll spend some on people and programs.
Ross says this plan is in addition to his earlier proposal to expand the break on manufacturing equipment to match other states. By not covering replacement machinery, Arkansaas policy is a disincentive to expand or renovate in Arkansas, Ross says.
Republicans will scoff at the Ross plan as a response to Hutchinson. There was never any doubt he had to have a tax cut proposal of his own beyond the manufacturers’ break, which was never depicted as the totality of what he’d have in mind. Liberals like me will lament a lack of a higher rate at the top end to replace some lost revenue. Mike Ross simply can’t be expected to propose anything that smacks of a tax increase. I get it politically, even if I regret it. Though Ross’ plan makes a huge stride toward fairness, a $75,000 top bracket is still too low. I’d move it to $100,000 and add an increment on amounts above that. But it isn’t 1972 and Dale Bumpers isn’t governor, following on the heels of a Republican, Win Rockefeller, who’d have imposed an even bigger hit on the wealthy.
Ross’ plan is achievable if the state grows. It is bold in the context of Arkansas, but painless in his design and a long-overdue correction to the crippling impact of failure to do anything about the flattening of the once-progressive tax over the last four decades. If he can do it incrementally without heavy cost to vital services — as opposed to the Republican approach of whack-taxes-now-worry-about-services-later — it could be the classic win-win.
Ross’ full release follows on the jump. PS — John Burkhalter, the Democratic candidate for lieutenant governor, endorses it. A ticket in the making.
UPDATE: Asa Hutchinson has issued a statement in which he says the specificity of his cut makes it superior and the fact that Ross’ plan retains a 6.9 percent top rate. His full statement also follows. He is not at all specific, however, about addressing the bracket cliffs in his plan.
MIKE ROSS NEWS RELEASE
Mike Ross, a candidate for governor of Arkansas, on Wednesday introduced a proposal to cut the state’s income tax for nearly every working family in Arkansas, including many small businesses as well. Ross called the current income tax code, which hasn’t fundamentally changed since 1971, out-of-date and unfair for the average working family. When fully implemented, Ross said his proposal would bring fairness to the tax code and would cut income taxes by as much as $665 for the average working family in Arkansas.
“When a single mom in Arkansas making $34,000 a year is paying the same income tax rate as someone making $340,000 a year, there is something unfair and morally wrong about our tax code,” said Ross. “I want to modernize our income tax code in a way that means lower, fairer taxes for working families and small businesses in Arkansas, and I want to do so in a fiscally responsible way that maintains our balanced budget and protects vital state services like education, Medicaid and public safety. Just like Governor Beebe did with the sales tax on groceries, I will also gradually phase in my tax cut plan as the state can afford to do so. As governor, I will bring fairness to the tax code and put more of working families’ own money back into their pockets.”
The fundamental structure of the state’s income tax brackets has not changed since 1971. With Act 328 of 1997, state law began tying the brackets to inflation with a 3 percent cap on indexing, but did not make it retroactive – Ross’ tax cut plan essentially makes Act 328 retroactive.
Currently, the state’s top income tax bracket of 7 percent starts at $34,000, meaning every taxpayer who makes more than $34,000 pays the same top tax rate. Ross’ tax cut plan sets the state’s top tax bracket at $75,100 and lowers the tax rate for nearly all income under $75,100 – reducing the tax burden for nearly every working Arkansas family and many small businesses.
Ross said his tax cut plan, when fully implemented, would cut income taxes by as much as $465 for incomes at $30,000; $665 at $40,000; $880 at $50,000; and, $1,148 at $75,000 and up. Ross also said his tax cut plan would cost about $574.5 million, according to official estimates from the state’s Department of Finance & Administration – nearly half of the cost of Governor Beebe’s 2006 proposal to eliminate the sales tax on groceries. Ross added that he would systematically phase in his tax cut plan in a fiscally responsibly way as the state experiences revenue growth, just as Gov. Beebe has done with the sales tax on groceries.
“Governor Beebe’s leadership demonstrates that we can cut taxes for working families and small businesses and protect vital state services,” said Ross. “My tax cut plan will bring fairness to the tax code by cutting taxes for working families and small businesses who need it most. And, it will be implemented in a fiscally responsible way by phasing it in gradually as the state experiences revenue growth – maintaining our state’s balanced budget. I will always campaign and govern as a fiscal conservative, because, unlike my opponents, I will not bankrupt this state to win an election or make a campaign promise I cannot keep.”
To read more about Ross’ tax cut plan, visit www.MikeRoss.com.
ASA HUTCHINSON STATEMENT
Republican candidate for Governor, Asa Hutchinson released the following statement:
“I’m glad longtime Democratic Congressman Mike Ross finally recognizes the need for tax relief in Arkansas.
Unfortunately his plan is just not serious. It has no specifics or time-frame for action.
Three months ago, I laid out a serious plan to begin reductions of our income tax rates in Arkansas. I gave a specific timeline and how I will lead as Governor. This is a clear difference in leadership.
My plan is specific and on day one we will have legislation for middle income tax relief in Arkansas.
While my plan focuses on competitive tax rates in Arkansas for job creation, the Ross plan is not a long-term solution for economic growth. Under Mike Ross, Arkansas will continue to have the highest income tax rate in the region. This is a fundamental difference in our vision for growing Arkansas’s economy and creating jobs.
Finally, Mike Ross needs to answer this question: What is his first priority? Is it the $40 million dollar tax relief that he promised to the manufacturers or the half a billion-dollar tax proposal made today?”