LITTLE ROCK, Ark. (AP) - With proposals to slash taxes for low-income Arkansans and military veterans, Gov. Asa Hutchinson hopes to win the support of some fellow Republican legislators as well as Democrats who felt their top priorities were left out of a package helping middle-class taxpayers that was approved last year. His bigger challenge will be trying to stave off the anti-tax sentiment that swept Hutchinson and other Republicans into power.
Hutchinson last week announced that his $50 million plan would reduce income taxes for 657,000 Arkansans making less than $21,000 a year. He’s pairing it with a $13 million proposal to exempt military veterans’ retirement benefits from the income tax, a reduction he says would be offset by closing exemptions elsewhere in the code.
Hutchinson’s proposal is the follow-up to the $102 million tax cut package he championed and lawmakers approved last year, cutting rates for those making between $21,000 and $75,000 a year. Hutchinson was elected in 2014 on a vow to cut income taxes across the board, and his latest cut comes as he’s preparing for a widely expected re-election bid.
“I’m presenting this because I believe it’s the best plan for the state, and I’m asking the Legislature to consider it and embrace it,” Hutchinson told reporters at the Capitol last week.
Hutchinson’s tax cut plan last year meant tempering the GOP’s push for other reductions, including a break for military veterans that other top Republicans including Lt. Gov. Tim Griffin had advocated. In unveiling the plan last week, Hutchinson echoed the argument that exempting veterans’ retirement benefits could be an economic development tool for Arkansas.
“I believe it will help us to bring more military retirees here, welcome them back to Arkansas,” Hutchinson said.
It also addresses a concern Democrats, who have seen their numbers dwindle in the majority-GOP Legislature, raised that the last round of tax cuts did little to help the state’s poorest citizens and came at the expense of other state needs. With the House Revenue and Taxation Committee evenly split between Democrats and Republicans, Hutchinson may need some support from his rival party to advance the plan.
But he’ll likely have to battle criticism that the veterans’ exemption is being paid for by raising taxes on some of the state’s poorest. The offsets include levying the full sales tax rate on candy and soft drinks, applying the sales tax on the full price of manufactured housing and ending the state income tax exemption on unemployment benefits. Hutchinson also wants to cut the tax restaurants and retailers pay for the syrup used for making soft drinks to ensure there’s not a net increase in taxes in his package.
The bigger challenge may come from within Hutchinson’s party. One GOP lawmaker has said he’ll propose a $105 million tax cut next year, and has suggested that tax revenue from the state’s newly legalized medical marijuana industry could be used to help make up for the revenue loss. Voters approved a medical marijuana legalization initiative last month, but it could be several months or longer before the drug is sold in the state.
Other ideas that have been floated include halting a reduction in the state’s grocery tax that was enacted under Democratic Gov. Mike Beebe that was expected to be funded by the end of desegregation settlement payments and instead use that money for reducing the income tax further. Americans for Prosperity, a conservative advocacy group, has called Hutchinson’s plan a good starting point but says it wants the Republicans governor to address a top income bracket it calls “uncompetitive with neighboring states.”
Republican Rep. Charlie Collins said he was “flummoxed” by Hutchinson’s plan, which he says focuses on specific groups rather than broader changes that would benefit more taxpayers.
“It’s just not fair and it’s bad policy in addition to not being fair,” said Collins, who sits on the House Revenue and Taxation Committee.
Hutchinson says he’s not giving up on tax cuts for higher income earners, but says that will have to wait another year.
“There’s no doubt in my mind when we come back for the final round of tax cuts, or the next round, it will be for the higher income levels,” he said. “So please be prepared for that, because they are the job creators, they drive our economy. But this is the right spot for now.”
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Andrew DeMillo has covered Arkansas government and politics for The Associated Press since 2005. Follow him on Twitter at www.twitter.com/ademillo
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