AR Tax Reform Now in Hands of Task Force

FAYETTEVILLE, Ark. -- The future of tax reform in Arkansas is in the hands of the Tax Reform and Relief Task Force, created during this year’s legislative session and set to meet for the first time on Monday.

Gov. Asa Hutchinson has gotten two major tax cuts through the Legislature while in office. One was passed during 2015 and reduced the state income tax rate by one percent for people earning between $21,000 and $75,000 a year. A $50 million tax cut was signed into law during February and provides tax relief to Arkansans who earn less than $21,000.

With the passage of this year’s $50 million tax cut (the Tax Reform and Relief Act of 2017), the Legislature also created a task force to “examine and identify areas of potential reform within the tax laws of the State of Arkansas and to recommend legislation to the General Assembly for consideration during the 2019 regular session.”

The task force consists of 10 Republicans and six Democrats.

By December 1, the task force will need to file a preliminary report of activities and tax recommendations to Hutchinson, Senate President Pro Tem Jonathan Dismang and House Speaker Jeremy Gillam.

‘A Patchwork Quilt of Good and Bad Policies’

Rep. Jim Dotson, R-Bentonville, called the state’s current tax code a “patchwork quilt of good and bad policies.”

“Arkansas has extremely high income and sales tax,” Dotson said.

He wants to follow in the stead of North Carolina’s Legislature, which he said is a solid example of responsible tax reform. Rep. Bob Johnson, D-Jacksonville, also wants Arkansas to follow in North Carolina’s stead. In fact, he said he’ll be traveling to North Carolina to speak with legislators there on tax reform.

North Carolina implemented a strategy of lowering some tax rates, and as revenue increased, it triggered further tax cuts, according to Dotson. The hope is those tax cuts will lead to the creation of more jobs. Those jobs will then increase tax revenue, which will trigger more cuts and keep the process going.

Both said they want to see the same thing happen in Arkansas, bringing down income and sales tax responsibly without slashing vital state services.

This is a long-term approach to fixing the state’s tax environment, according to Dotson.

“It takes a little bit of time to properly put it all together,” he said.

Both legislators also said one state’s example Arkansas doesn’t want to follow is Kansas. The state has a significant budget hole due to large income tax cuts and a cut to taxes on partnerships and limited liability companies. The latter tax cut led to Kansas losing 30 percent of its revenue.

“We want to model ourselves after a winner. We don’t want to model ourselves after a loser,” Johnson said.

Experience and Goals

Dotson said he’s studied tax policy for years, and Johnson said he’s the only practicing certified public accountant in the Legislature. Both bring tax experience to the task force.

Dotson spoke of broadening the base and closely looking at all of the state’s current tax exemptions and deductions, seeing if any need to be closed or updated.

The Jacksonville Democrat echoed that sentiment, adding he doesn’t want to simply lower taxes if they’ll end up shifting financial burden from one group of people to another.

Broadly speaking, Johnson said he wants to reform the state’s tax code to make life easier for Arkansans and businesses. The legislator said he’d like to see salex tax on food and medicine done away with. He’d also like to fix things in the tax code that don’t make sense to him. For example, why it’s often more beneficial for married couples to file separate instead of joint state tax returns or why corporate tax brackets increase so fast.

Dotson said he wants to accomplish three goals on this task force, make Arkansas more business friendly, make the state competitive and streamline the tax code.

Johnson agreed his overall goals seem similar to Dotson but added the two may disagree on how to implement those goals.

“I’m going in with an open mind to make Arkansas better,” Johnson said.

Medical Marijuana Tax Revenue

The Bentonville Republican said tax revenue from medical marijuana sales doesn’t factor into his goals for tax reform at this time. Johnson said he’ll wait and see what happens in regard to cannabis sales totals.

Johnson said he believes taxes generated by medical marijuana sales will help the state’s general revenue some, but he wants a closer look at the numbers before deciding whether to recommend additional taxes on cannabis.

Looking at it as medicine, the legislator said he doesn’t want to pull it out of reach with additional taxes for patients that need it. If recreational marijuana is ever legalized in Arkansas, the legislator said he’d be open to taxing that more heavily.

The Next Step

Dotson said the next step in reforming the state’s tax system is dependent on the task force and what it recommends.

He said although the possibility always exists for gridlock since it’ll be a bipartisan body, Dotson doesn’t expect that to hinder progress. Instead, he predicts the Tax Reform and Relief Task Force will be as productive as the task force that helped to shape Arkansas’ Medicaid expansion (now called Arkansas Works).

When the task force meets, one of the first orders of business will be selecting a chairman, Johnson said. The Jacksonville Democrat said Dotson was one of the legislators on the task force he was considering for chairman.

Whoever is selected to lead the task force, the next phase of reshaping tax policy in Arkansas kicks off on Monday at 10 a.m.

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