Capitol Week in Review

Wednesday, December 5, 2018

The Arkansas Tax Reform and Relief Legislative Task Force is working until the proverbial last minute to finalize a package of recommendations for the regular session of the legislature, which begins Jan. 14.

A few details remain to be ironed out, but it is highly likely that one recommendation will be a major reduction in individual income taxes.

The legislature created the 16-member task force during the 2017 session. Its purpose is to recommend bills that will modernize and simplify the tax code, while encouraging job creation.

The act that created the task force specifically directed its members to ensure fairness to all individuals and businesses that pay taxes in Arkansas. Also, recommendations should have the purpose of making our taxes competitive with other states, in order to attract businesses to Arkansas.

Over the past two years the task force has met regularly and sometimes at great length. Dec. 12 may be its final meeting. After that, the task force will forward a package of recommendations to the entire General Assembly. They will be introduced as bills and referred to the Senate and House Committees on Revenue and Taxation.

The recommended tax cuts would begin to take effect on January 1, 2020.

While the task force has been working on its version of an income tax cut, the governor and his administration have also been building support for an income tax cut.

The governor’s plan is similar in many ways to the task force proposal, but not completely identical.

Both the governor’s proposal and the task force’s recommendation would simplify the income tax codes, while lowering the tax burden paid by Arkansas families.

Task force members and state tax officials commonly refer to the legislative proposal as “Option A,” to distinguish it from several other options that were considered.

They refer to the governor’s tax cut proposal as the “2, 4, 5.9” plan, because it would lower income tax rates to two percent for people who earn up to $8,000 a year, four percent for those who earn between $8,001 and $18,000 a year and 5.9 percent for people who earn more than $18,000 a year.

Those rates would be phased in gradually. Legislative leaders have said they want to protect the state budget from a drastic shortfall that would negatively affect its capacity to provide essential services. For that reason, the task force has been studying possible “triggers.” In other words, certain tax cuts would not take effect until a designated “trigger” occurs, such as revenue growth reaching two percent.

Also, the tax force heard from tax officials in other states. The intent was to model Arkansas reforms after states that were successful, such as North Carolina and Indiana.

Also, Arkansas wants to avoid the experiences of Kansas and Oklahoma, where tax cuts were a factor when declines in revenue created problems in school funding.

Because of unique language in the state Constitution, some tax measures require a 75 percent majority of legislators for approval, while others require simply a 51 percent majority.

The different thresholds will affect the strategies employed by sponsors of tax cut legislation.