Arkansas lawmakers gave final approval Thursday to Gov. Asa Hutchinson's proposal to cut income taxes for the middle class by $102 million a year, a measure that also calls for reducing part of a 2013 capital gains tax break.
By a 31-0 vote, the Senate sent the new Republican governor legislation following through on his chief campaign promise last year. Hutchinson, who was sworn in last month, has called the tax cut his top priority this legislative session. The governor planned to sign the measure into law Friday morning.
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"This is an encouraging first step in making Arkansas' income tax rates more competitive with surrounding states, which will only enhance our reputation as a state that is eager to attract and accommodate new jobs and businesses," Hutchinson said in a statement released by his office. "Arkansas has been an island of high taxation for too long, and I'm pleased that we are doing something about that."
The proposal would cut income taxes from 6 percent to 5 percent for those making from $21,000 to $35,099, and reduce taxes from 7 percent to 6 percent for those earning from $35,100 to $75,000. The measure has faced scant opposition in the majority-Republican Legislature.
"I'm proud we're able to accomplish this for Arkansas taxpayers and working families," Senate President Jonathan Dismang, R-Beebe, told reporters after the vote.
The bill also scales back a capital gains tax break that lawmakers approved two years ago, lowering the amount of capital gains excluded from income tax from 50 percent to 40 percent. The proposal initially called for lowering the exclusion to 30 percent, which would have repealed the 2013 tax cut. The House amended the proposal to restore part of the tax break.
The proposed tax cut comes as Hutchinson puts forward a $5.2 billion state budget that calls for boosting money for schools, prisons and Medicaid, but a 1 percent cut for other state agencies. Hutchinson's proposed spending plan also relies on tapping into the state's projected $216 million surplus to pay for ongoing state needs.
Legislative leaders have said Hutchinson's tax cut leaves little room to take up other breaks or reductions.
Three Senate Democrats who had voted against the tax cut measure last month backed its final approval Thursday. One of the three, Sen. David Johnson of Little Rock, said he still had some concerns about the potential revenue loss.
"I think there are still important policy questions about the tax cut, but I see the tax cut in a broader political frame and I think it can make sense given the governor's larger agenda," Johnson said. "With this last step, I'm happy to cast a vote in favor of the governor getting across the finish line."
But the chairmen of the House and Senate tax committees said they're open to considering restoring the rest of the capital gains break that was repealed if state revenues continue coming in above expectations. Both said they wouldn't rule out other cuts, but said they'd prefer waiting until the end of the session to take up any other proposals.
"We want to do this thing in a responsible manner," said Rep. Joe Jett, D-Success. "We don't want to get out there and start slashing and burning and the next thing we know we start having to cut from state agencies and services."
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