Gov. Asa Hutchinson signed his promised tax cut package into law this morning with a bipartisan group of dozens of legislators in attendance. It caps quite a week for the governor, in which the two biggest pieces of legislation the session is likely to see — the tax bill and the private option — were approved by the General Assembly by wide margins and sent to his desk.
The governor said the reduction in the income tax calls for “celebration,” but promised that more will be coming in the future. “It’s a start for being competitive for job creation in our state. Arkansas has been an island of high income tax rates, higher than anyone in our region, and this starts flattening and lowering that income tax rate from 7 percent down to 6 percent, 6 percent to 5 percent.”
Hutchinson praised Jeremy Gillam, the Speaker of the House, and Jonathan Dismang, the Senate President Pro Tem, for their leadership.
“Members of the legislature … have done extraordinarily hard work and quick work in building a bipartisan consensus for this legislation,” he said. Hutchinson also recognized Rep. Charlie Collins (R-Fayetteville), who he called “a key initiator of tax-cutting legislation.” Collins championed an across-the-board 0.1 percent income tax break in 2013, but a portion of that cut was delayed this year in order to create the necessary room in the state budget for Hutchinson’s plan.
And the governor praised the bipartisan vote on his bill. House Revenue and Tax Chairman Joe Jett, Hutchinson said, “led this effort on the House side in terms of bringing it through committee.” Jett and other leading Democrats have said in the past that working for the benefit of the middle class is their top legislative priority, and most Dems more or less embraced the governor’s tax program.
The tax cut is indeed fairly progressive for a Republican governor to champion. It benefits taxpayers making between $21,000 and 75,000 annually. “I always call it the sweet spot of our economy,” said Hutchinson, “people who are working hard trying to make ends meet; I think it’s important that we focus our first tax cut effort towards the middle class.”
One lingering question, though — what about the 40 percent of Arkansans making under $21,000? Why did the bill include nothing for them?
“Because this focused on the middle class,” Hutchinson said (a bit pointedly) when I put the question to him today. “Obviously, we have Arkansans that make less than that, and Arkansans that make more than that. This focused on those who have really been extraordinarily strained, and did not have some of the social program protections we have [for low-income people].”
“And also, I would add that the previous legislature had a tax cut for across the board including the lower income, and that was maintained,” he continued, referring to Collins’ tax bill of 2013. “It was not rolled back, it was not delayed … so this year, even those in the lower income category did get a tax reduction.” This is true: The one-year delay in Collins’ 0.1 percent reduction only applied to the highest income brackets, which is good. But in subsequent tax years the net effect will still be a slightly higher tax burden carried by the lower end of the income ladder, if no additional changes are made.
The governor said in his remarks that other income groups will see a break in the future. “This is a responsible first step. We did this consistent with our responsibilities to education, to essential state services, and we’re fulfilling our commitment in that regard. … as we grow our economy we’re going to be able to do additional tax relief for other income categories. I know that some say we need to have more tax cuts for the job creators, and others say we need to have more tax cuts for the lower income categories. The bottom line is we want to make sure we can provide tax relief for Arkansans to help us grow our economy.”
Might that happen in the current session? “I think there’ll be more discussion on tax cuts in this session. … we’ve got a balanced budget, and if you reduce revenue by additional tax cuts, it has a consequence on the budget, and we have to look at that side, so we’re going to be very cautious about that.”
After the governor’s remarks, I spoke to Sen. David Sanders (R-Little Rock), who pointed out that there are other ways government has helped low-income Arkansans recently, foremost among them being expanded health coverage under the private option (or whatever you want to call it). There’s also the minimum wage increase that just passed — that should put slightly more money in the hands of poor families on the one hand, and also “will increase the cost basis of employers” on the other, said Sanders. And he mentioned the federal Earned Income Tax Credit (EITC), a significant income benefit for low-income working families that is vastly underutilized in Arkansas.
“We’re doing more than we’ve ever done in the history of this country for poor people in this state,” he said. “And that’s a good thing.”