Governor Seeks Tax Cuts for Low-Income Arkansans, Military Retirees

Gov. Asa Hutchinson on Tuesday at the state Capitol.

Gov. Asa Hutchinson said Tuesday he’ll propose a $50 million tax cut for lower income Arkansans and back a plan that would eliminate state income tax for those who get pensions from the military.

The governor said the tax cut would affect those making about $21,000 and below. You can see how the tax cuts would be applied here or at the table at the end of this article.

The governor said the cuts can be absorbed through normal growth, and characterized state tax collections as “strong.”

He said he remains “confident” in the current budget forecast.

Video: Watch the governor’s news conference below.

Hutchinson said the $100 million tax cut the Legislature previously approved — aimed at upper-class earners — benefited about 688,000 Arkansans, or 46 percent. The new, $50 million tax cut would cover about 657,000 Arkansans, about 44 percent.

In all, 90 percent of Arkansans — or 1.3 million — would benefit from those two tax cuts, he said.

Hutchinson also said he’d back a proposal to eliminate state income tax for those who get pensions from the military. He said Arkansas is not attracting military retirees at the same rate as states with more attractive tax environments, and that a tax cut to benefits could be an economic boost.

The plan would cost about $13 million, the governor said. Unlike the $50 million tax cut, this one must be offset by tax increases in other areas, he said. So the governor is proposing that the Legislature:

• remove the exemption from income on unemployment compensation, which would save $3.1 million.
• remove the sales tax exemption on the cost of manufactured housing, which would save about $2.4 million.
• Levy the full sales tax on candy and soft drinks, which would save $13.8 million.

Closing those exemptions would save $19.3 million. The governor said that would pay for the tax exemption to military retirement benefits, and provide $6.3 million to reduce 40 percent of the syrup tax. That portion originally went to Medicaid.

The governor said he knows there’s disappointment that more cuts didn’t come to the top income tax levels. But he said the best way to make a positive economic impact with a $50 million cut would be at the lower income levels.

Hutchinson said he would work with legislative leaders to get sponsors for his plan.

Republican Rep. Charlie Collins, who sits on a House panel that would take up the tax cut plan, told The Associated Press that he was disappointed in the governor’s plan. Collins said the reduction should be across the board, not just targeting one income bracket or one group.

“It’s just not fair and it’s bad policy in addition to not being fair,” Collins said.

The plan will also face pushback from Democrats, who have expressed concern about cuts coming at the expense of other state needs. Democratic Rep. Warwick Sabin, who also sits on the House tax panel, said he’ll again push for a tax credit for low-income residents.

“We need to do more to help bring people out of poverty and use tax policy to build the economy here in Arkansas,” Sabin said.

In a news release shortly after the governor’s news conference, the Tax Foundation of Washington, D.C., said it was encouraged by Hutchinson’s “concrete plan” to cut taxes. The group, which has lobbied for tax reform in Arkansas, said more work is needed.

“Many aspects of Arkansas’s tax code need reform, and individual income taxes are just one piece of that,” the organization said. “Arkansas’s use of three rate schedules for the individual income tax is unique among the 50 states and adds immense complexity to the state’s tax code. The governor’s plan doesn’t address this issue.”

Governor Hutchinson’s 2017 Lower Income Tax Cut Proposal

An additional $4,290,537 will go towards bridging the lower income brackets with the middle income brackets to prevent the cliff effect.

Total Income Tax Cut:            $50,517,296

(Andrew DeMillo of the The Associated Press contributed to this article.)