Senate President Pro Tempore Jim Hendren and other legislators have announced today a plan for a $100 million income tax cut for low- and middle-income taxpayers with the revenue loss offset by significant increases in cigarette and vape taxes.
This will mitigate, if successful, the giveaway to the tobacco lobby embodied in the bill to provide funding for a cancer research institute at UAMS. And it will also mitigate the income tax cut earlier in the session in which most of a projected eventual cut of $150 million in income taxes will go to people making more than $205,000 a year.
The proposal raises the standard deduction on income tax returns and also includes an earned income tax credit.
The size of the tobacco and vape tax increase wasn’t immediately announced. The cancer research bill imposed only a tiny sales tax increase on cigarettes, with much of the money coming from taxes on medical marijuana and cigarette rolling papers. Additionally, the bill prevents local governments from passing tobacco ordinances,
provides a preferential tax rate for new tobacco products that claim to have lower health risks (amended out) and also delays an increase in the age at which people may purchase tobacco. The bill may actually reduce state general revenue, according to the latest fiscal impact statement.
Four Democrats earlier introduced legislation to impose a tax on e-cigarettes.
Odds of slapping a fat tax on cigs over the tobacco lobby? Long, I’d say. The House Rules Committee awaits whatever emerges from the Senate.
UPDATE: Still awaiting
I’m also awaiting word from the governor on this idea.
After taking the ranch in the UAMS cancer research bill (a bill that may actually cost the state money), it’s hard to imagine Big Tobacco sitting still for a meaningful tax increase on their products.
Arkansas cigarettes are currently taxed at $1.15 per pack, plus the state sales tax. By one Internet account, our average cost ranks 34th in the U.S. Legislation introduced earlier would impose a 30 percent tax on devices and liquids used in vaping. Currently only the regular sales tax applies. There is no special excise tax. The cigarette excise tax was last raised in 2009.
Rich Huddleston of Arkansas Advocates for Children and Families cheered the development:
“Arkansas Advocates for Children and Families is thrilled with Senator Jim Hendren’s announcement today of his bill that would enact a state-level Earned Income Tax Credit for Arkansas (Senate Bill 571). The tax credit specifically targets low- and moderate-income working people, and 29 other states and D.C. have successfully enacted their own version. More than 300,000 Arkansans and their families stand to benefit from the tax credit, helping them pay for things like regular checkups at the doctor or being able to pay rent on time. A poll we released in April 2018 found that 79 percent of Arkansans, including 79 percent of independents and 72 percent of Republicans, support enacting a state-level Earned Income Tax Credit.”
UPDATE II: Here’s the bill.
* It exempts income up to $8,899 from the state income tax, up from $4,499.
* Beginning in 2020, the standard deduction goes from $2,200 to $3,300 per taxpayer.
* The earned income tax credit will be 5 percent of the federal credit and refunded to the taxpayer if in excess of tax liability.
* A 20 percent excise tax on the sale of
* A privilege tax equal to the levy on tobacco products other than cigarettes would be imposed on e-cigarette products, now untaxed except under the general sales tax. That law says smoking tobacco, moist snuff, cigars, and other tobacco are taxed at 68% of manufacturer’s invoiced selling price prior to any discount. That, one source tells me, could be the second highest vaping tax in the country.
The money would go to general revenues to offset the tax increase or to a trust fund to pay the earned income tax credit.
The cigarette tax would put Arkansas near Oklahoma, which assesses $2.03 a pack. Nobody has been able to estimate
The taxes are both “new” taxes, which means only a majority vote is required. Or that’s the thinking. It could be challenged. House Rules Committee becomes vital, both on reviewing the bill if passed by the Senate and on determining the necessary vote on the bill.
Gov. Asa Hutchinson issued a careful, non-committal statement:
“I appreciate the effort by Sen. Hendren and the sponsors for seeking additional ways to provide tax relief to those with lower incomes, as we did in 2017 with the low-income tax cut of $50 million. It is important that any additional tax relief be offset on the revenue side, which this bill seems to accomplish through a new tax on tobacco and related products. However, I will continue to study this bill and its revenue impact as it moves through the legislative process.
Hendren announced the bill this way:
— Jim Hendren (@JimHendren1) March 14, 2019
One more thought: Tobacco’s input on the UAMS cancer bill could make that bill a factor in tobacco’s effort to defeat this legislation. It could become a bargaining tool, it has occurred to several.
The cigarette tax was raised in 2009 to pay for a trauma system.