LITTLE ROCK, Ark. (AP) - The toughest job for a task force looking at an overhaul of Arkansas’ tax code won’t be how much of a tax cut to recommend to the Legislature before the 2019 session. It’ll be resisting pressure from a long list of lobbying groups hoping to protect exemptions that may have to be eliminated to accommodate any new tax reductions.
The 16-member task force kicked off its months-long effort last week with a warning from one of its co-chairmen about the tough choices they’ll face while reviewing a litany of tax exemptions.
“Anytime you start messing with people’s revenue streams, the folks who are the beneficiaries of that aren’t going to like it,” Senate Majority Leader Jim Hendren said last week.
But with a shaky revenue picture that’s prompted cuts to this year’s and next year’s budget, those exemptions may be the best way for lawmakers and Gov. Asa Hutchinson to follow through on pledges to enact deeper cuts in the state income tax. Hutchinson called for the task force’s creation after advocating a $50 million tax cut for low-income residents, a reduction that didn’t go as far as some fellow Republicans wanted in this year’s session.
Lawmakers already had a taste of the fight they’re facing over exemptions as they tried to come up with a plan to pay for a tax break for retired military veterans. An initial plan that called for raising taxes on manufactured housing was scrapped after opponents said it would unfairly target rural Arkansans. The final package raised taxes on soda, candy and digital downloads, drawing the ire of some conservative lawmakers and anti-tax groups. A broader look at other tax breaks could face even stiffer opposition.
“The big challenges are going to be every lobbyist in the state of Arkansas is going to be hired to protect someone’s carve-out,” Republican Sen. Bart Hester said. “There’s a reason you have so many carve-outs: because it’s so difficult to get rid of them.”
Democratic Sen. Joyce Elliott said reviewing the tax breaks makes sense, but worried about the exemptions that don’t have a lobbying group advocating for them to stay in place. She cited the income tax exemption on unemployment benefits, which was also removed to help pay for the veterans’ tax break.
“We don’t need to do this on the backs of people who are already hurting just because of perceptions they don’t deserve it,” Elliott said.
Adding to that pressure is the demise of two efforts to raise money for state needs that also faced pushback from anti-tax groups. Efforts to require online retailers to collect state sales taxes and a bid to push a fuel tax increase onto the ballot both were rejected during the legislative session.
The panel is reviewing the exemptions amid uncertainty about the state’s financial health. Arkansas is touting a record-low unemployment rate of 3.5 percent, but Hutchinson ordered a $70 million budget cut this year and another $43 million cut for next year after revenue came in lower than expected. Democrats have also complained that the tax cuts enacted since Hutchinson took office two years ago are coming at the expense of other needs in the state’s budget.
“Nothing is going to come easy out of this,” said Republican Rep. Joe Jett, who also chairs the House Revenue and Taxation Committee. Jett said he’d like the panel to come up with a comprehensive tax package that’s also prioritized, similar to the Revenue Stabilization law that sets priorities for Arkansas’ budget based on its revenue.
The panel has a short window to make sense of the exemptions, with a Sept. 1 deadline for a preliminary report and a final report required by December 2018. The recommendations could dominate the 2019 session, though Hendren left open the possibility they may need to be considered in a special session.
“I envision us mapping out the path to tax relief as well as tax reform,” Hendren said.
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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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