Still short on dollar amount details, Speaker of the House Davy Carter, R-Cabot, says he will amend his capital gains income tax cut measure later this week or early next week to reflect his thoughts on the pro-business, pro-investor bill.
With neighboring states making moves to reduce their tax rates, some say Arkansas is under pressure to remain competitive in the retention and recruitment of jobs.
HB 1966 was filed Monday as a shell bill. Carter tells Talk Business there will be two components to the measure.
“Part one will address existing investments that are currently being held,” Carter said. “Part two would deal with investments that are made in the state that are new investments going forward.”
“There will probably be two separate set of rules for those things,” Carter added.
The Speaker said he hoped the existing investment portion of his amended bill would allow for a capital gains tax break up to a certain level – “seven figures plus” – Carter said.
“I don’t know what that dollar amount would be. But what you find is an incentive to leave Arkansas at some point whenever you’ve had a career here and made significant investments and created hundreds or thousands of jobs,” he said. “You have other states that aren’t going to implement such a high capital gains tax. That becomes a factor.”
Carter said he is awaiting a number of fiscal impact scenarios before filling in details of his bill. Even after they are received, he says he may alter the bill more than once to reflect negotiations and discussions with House members and Gov. Mike Beebe.
Carter laid out his intent to include a capital gains tax cut bill two weeks ago when he told House Revenue and Tax committee members that he wanted it to be part of a potential $150 million tax cut package.
“At the end of the day, the folks that are going to be paying for this are the job creators in this state and this country. We’re going to at least give that due consideration.” Carter told reporters later in the day.
John Taylor, a member of the Board of Directors at Fort Smith-based Benefit Bank, and senior vice president in Fort Smith for Sterne Agee, is concerned that overall tax rates in neighboring states will harm Arkansas’ ability to compete for jobs.
“There is a real possibility that if Arkansas doesn’t act, we could be an island surrounded by contiguous states that have lower rates that are more advantageous to attracting jobs,” Taylor said.
Taylor said Arkansas is one of the best places to live in terms of cost of living, “but when you look at the overall per capita tax liability, we are not competitive with our surrounding states.”
The 2013 State Business Tax Climate Index produced by the Tax Foundation shows Arkansas (33) ranks ahead of Oklahoma (35) in terms of overall tax liability compared to contiguous states. Texas (9) is first among the contiguous states, with Tennessee (15) second.
OKLAHOMA, MISSOURI MOVES
The Oklahoma House of Representatives on Wednesday (Mar. 13) approved legislation that lowers the top income tax rate from 5.25% to 5%. Oklahoma Gov. Mary Fallin (R)made the proposal in her 2013 State of the State address and included it in her executive budget.
“Reasonably and responsibly reducing the top rate will boost our economy and leave us with the revenue we need to support priorities like education and public safety,” Fallin said in a statement. “Lower taxes mean stronger economic growth and more job creation. It’s important for businesses to see that, even as other states and the federal government pursue tax hikes, Oklahoma remains committed to lower taxes and smaller government.”
On Tuesday, the Missouri Senate approved a bill that would reduce the maximum tax rate on individuals and corporations. The bill also lowers the tax liability for low income families by almost doubling a $2,100 deduction for individuals earning less than $20,000 a year.
To make up for the cuts, the bill seeks to raise the Missouri sales tax rate from 4% to 4.5%. The cuts and increases are phased in over five years.
‘COMPARE APPLES TO APPLES’
Sen. Jake Files, R-Fort Smith, and chair of the Senate Revenue and Tax Committee, shares Taylor’s concern, but said his focus is to “find the most responsible” areas in which to reduce taxes. He also said it is important to look at the overall tax picture.
“We have to compare apples to apples and look at the total tax bill,” Files said.
Indeed, the Tax Foundation report shows differences in state ranks when analyzing the different tax streams. For example, Arkansas ranks better than most of its contiguous states on property tax liability.
Comparing sales taxes, Arkansas ranks better than Louisiana, Oklahoma and Tennessee.
But on the individual income tax liability, only Oklahoma ranks higher than Arkansas.
Individual income tax
Talk of reducing Arkansas’ individual income tax rate – now at 7% – includes the frequent reminder that the tax generated almost 49% of Arkansas tax revenue in the most recent fiscal year ended June 2012. The state collected $5.924 billion in tax revenue in the fiscal year.
Files said reducing the income tax rate will be a “daunting” challenge.
“I definitely believe we are overtaxed, but how we get there (reduced taxes) is the question. I think we have to be prudent and not just slash and burn,” Files explained.
Files also said he doesn’t subscribe to the notion by some that Arkansas can’t afford any reduction in tax revenue.
Taylor is not critical of Arkansas political leaders, and realizes the issue is complex.
“Look, I don’t have a solution. ... I’m not criticizing them (Legislators) for not addressing this, but I just know that the reality is that (Arkansas’ tax structure) is a competitive disadvantage,” Taylor said.