LITTLE ROCK — Republican gubernatorial candidate Asa Hutchinson pledged Tuesday that if he is elected he will push for an income tax cut for Arkansans earning between $20,400 and $75,000 a year.
The former congressman and undersecretary of the U.S. Department of Homeland Security said his plan would lower the state income tax rate for people earning between $34,000 and $75,000 a year from 7 percent to 6 percent and would lower the rate for people earning between $20,400 and $34,000 a year from 6 percent to 5 percent.
Currently, the income tax rate for Arkansans earning $34,000 a year and up is 7 percent. Hutchinson said that eventually he wants to lower income taxes for all Arkansans who now pay the state’s top rate. All of the states surrounding Arkansas have a lower rate for the top income bracket or have no income tax, he noted.
“As the economy grows and surpluses increase, then we can gradually reduce the rates on higher-income individuals, but let’s start with the hard-working Arkansans who are in the middle class, that need the relief the most and that can use this money for their own benefit and to spend,” he said in a news conference announcing his proposal.
His news conference came just hours before all of the announced gubernatorial candidates appeared in Hot Springs at a conference of the Arkansas Public School Resource Center.
Hutchinson said the average person in the targeted income range would get a $300 tax break under his plan. He estimated that the tax break would affect 500,000 Arkansans and would cost the state $100 million a year.
State Department of Finance and Administration officials estimated the proposal would have a higher price tag. In an email, DF&A Director Richard Weiss said Hutchinson’s proposed cut would cost $148.1 million a year.
Hutchinson spokesman Jon Gilmore said the varying estimates resulted from different methods of calculating the tax cut’s impact. He said the agency assumed that people making over $75,000 would receive a tax break on the first $75,000 they earn, but that is not Hutchinson’s intention.
Deputy DF&A Director Tim Leathers said that if everyone earning over $75,000 is completely excluded from the tax break, then “if you make $75,001, all of a sudden that $1 in income costs you $300 in tax.”
“When we talked to them today, they said they did not intend to have that impact,” Leathers said. “We’re going to have to know exactly what their plan is. We have not seen that.”
Hutchinson told reporters his proposal would not impair the state’s ability to maintain its commitment to funding public schools and having a balanced budget.
“No reduction in spending is necessary. This is paid for out of growth and surplus money,” he said, noting that the state ended the past fiscal year with a $299 million surplus and that annual revenue growth has averaged 2 percent in recent years.
Weiss said $114 million of the surplus from the past fiscal year has not been obligated. The state is projected to have a $126 million surplus at the end of the current fiscal year, he said.
A tax cut passed in the first year of a Hutchinson administration presumably would affect Arkansans’ taxes for calendar year 2016.
Earlier this year, the state Legislature approved a package of tax cuts that will total $140 million by the 2015-16 fiscal year. Gov. Mike Beebe has said the state’s ability to afford the tax cuts is dependent on savings the state will see as a result of the so-called “private option,” Arkansas’ plan to use federal Medicaid money to buy private health insurance for low-income workers.
Hutchinson said Tuesday he did not see his plan as being dependent on the private option.
Some Republican legislators have advocated defunding the private option during the fiscal session that begins in February. Asked what he believes lawmakers should do about the private option, Hutchinson said it was “premature to say exactly what we should do” because the president and Congress could make changes to the federal Affordable Care Act before then.
Democratic gubernatorial candidate Mike Ross has proposed phasing out the sales tax on manufacturers’ equipment. Hutchinson said Tuesday he believes that such proposals “miss the boat.”
“If you have a targeted tax cut for industry, then that neglects the retail sector, that neglects tourism, that neglects the mom-and-pop store, that neglects agriculture. This is the only proposal that helps every sector of our economy,” he said.
Ross spokesman Brad Howard said Tuesday, “Since launching his campaign, Mike Ross has said he would implement income tax cuts that target working families who need it the most, and we are pleased to see Asa Hutchinson has come around to Mike Ross’ position.
“However, as a proven fiscal conservative, Mike Ross has pledged to cut income taxes in a fiscally responsible way that maintains our state’s balanced budget and protects essential state services like education, public safety and Medicaid for working families and seniors.”
Little Rock businessman Curtis Coleman, also seeking the GOP nomination for governor, issued a statement Tuesday criticizing Hutchinson’s plan for not going far enough.
“Cutting personal state income taxes will help — and most importantly provide much needed relief to most hard-working Arkansans — but in order to create a pro-jobs, business-friendly economic environment right here in Arkansas, it is crucial that we also reduce our corporate tax rates and eliminate our capital gains tax,” Coleman said.
State Rep. Debra Hobbs, R-Rogers, also a Republican candidate for governor, said Tuesday she favors tax cuts but wants to ensure that the state doesn’t cut so much that it has to raise the sales tax to meet needs.
Democratic Gov. Mike Beebe is prohibited by term limits from seeking a third term.