Arkansas Governor Signs Middle-Class Tax Cut into Law

LITTLE ROCK — Gov. Asa Hutchinson on Friday signed into law his middle-class income tax cut and said the level of revenue growth in the coming months will determine whether there is room in the state budget for more tax cuts this session.

The tax cut “provides a focus on the middle class. … I always call them the sweet spot of our economy — people who are working hard, trying to make ends meet,” Hutchinson said during a bill-signing ceremony at the Capitol attended by several legislators.

The Senate gave final approval Thursday to Senate Bill 6, now Act 22 of 2015, which reduces income tax rates for people earning between $21,000 and $75,000 a year by 1 percentage point compared to last year.

People earning between $21,00 and $35,099 a year will pay 5 percent instead of 6 percent, and people earning between $35,100 and $75,000 a year will pay 6 percent instead of 7 percent.

The tax cut was Hutchinson’s No.1 campaign promise. He said Friday that it not only provides relief to the middle class but also “helps our competitive edge, our talking points as we recruit industry to this state.”

Act 22, sponsored by Senate President Jonathan Dismang, R-Beebe, also delays portions of an across-the-board income tax cut of one-tenth of a percentage point that lawmakers approved in 2013 and partially repeals a capital gains income tax cut that lawmakers approved in the same year. Both of the 2013 tax cuts were originally set to be phased in gradually.

The capital gains tax cut, which went into full effect Jan. 1, raised the tax exemption on capital gains from 30 percent to 50 percent and exempted all capital gains in excess of $10 million from the state income tax. The Senate amended the bill to repeal that tax cut to reduce the net cost of the governor’s tax-cut package, but House members amended the bill to set the exemption on capital gains at 40 percent.

The net impact of the tax-cut package on the state budget is estimated at $90.3 million

Hutchinson said he is aware that some legislators want to restore more of the capital gains tax cut, while others want to cut taxes for lower-income Arkansans.

“We’re going to be very cautious about that, because it’s very important to fund education and the other essential services of our state,” he said. “Some of this will depend upon the continued revenue projections that we have. That’s been good so far, but we’ve got to continue to monitor that.”

Hutchinson said the various proposals for additional tax cuts will have to “work through the marketplace of ideas.”

“I want to continue to focus on reducing the income tax,” he said. “I know there will be more discussions down the road on the capital gains tax as well. I think that depends on the revenue growth that we will be able to monitor in the coming months.”

Rep. Joe Jett, D-Success, chairman of the House Revenue and Tax Committee, said in an interview Friday that he and Sen. Jake Files, R-Fort Smith, his counterpart on the Senate Revenue and Tax Committee, are working on legislation to restore more of the 2013 capital gains tax cut.

“It’s hard to tell these folks two years ago we were going to do this, and these folks make some business plans on this, and then two years later we just kind of pull the rug out from underneath them,” he said.

Jett said he and Files are considering proposing to restore the 50 percent tax exemption on capital gains and exempt from taxes all capital gains in excess of $15 million, “if there’s money there.”

“Right now we’re working on getting a fiscal impact (statement),” he said.

For now, Jett said he and Files will postpone holding votes in their committees on any proposed tax cuts that would impact the state budget.

“We’ll hold all these tax cuts on both ends, get together and see what kind of money is left and then we can prioritize, if there’s money left. We just want to do this thing in a responsible manner,” he said.

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Source: Arkansas News