$7 million military income tax cut clears Senate panel


LITTLE ROCK — A pair of tax cuts and a tax increase cleared the Senate Revenue and Taxation Committee on Wednesday, a possible signal of a shift in legislative consideration from social issues to money matters.

The committee’s consideration of tax bills came a week after House Speaker Davy Carter, R-Cabot, advised members of the Legislature’s tax panels to consider $150 million in tax cuts.

The largest tax cut endorsed by the Senate committee Wednesday, which would reduce state revenues by about $7 million annually, was Senate Bill 463 by Sen. Jim Hendren, R-Gravette. The proposal would exempt the service pay of about 6,300 active duty military personnel from the state income tax.

Tim Leathers, deputy director of the state Department of Finance and Administration, said the loss of revenue would have to be made up somewhere else within Gov. Mike Beebe’s proposed balanced budget for the fiscal year that begins July 1. He asked the panel to “weigh that very seriously as you make your decisions.”

Beebe’s budget does include a conditional reduction in the state’s grocery tax to one-eighth of a cent, but only when the state’s desegregation settlement payments or other bond obligations decrease by $35 million over a six-month period.

Hendren urged approval of his bill, saying it’s time to provide a tax cut “to those who have really paid a heavy price.”

Retired Lt. Col. Ken Griffin of Van Buren spoke for the bill.

The tax cut was endorsed unanimously on a voice vote.

The committee also unanimously endorsed House Bill 399 by Rep. Joe Farrer, R-Austin, which would allow volunteer firefighters to deduct from their state income taxes the amount of money they spend buying firefighting equipment and any losses to personal property that they experience while fighting fires, up to a maximum of $1,000.

Leathers also spoke against the proposal, which he said would cost the state about $48,000 annually.

The tax increase endorsed by the committee, SB 5 by Sen. Bill Sample, R-Hot Springs, would raise the state forestry tax by 5 cents, from 15 cents to 20 cents per acre. The increase would generate about $700,000 in additional funding to bolster the Arkansas Forestry Commission’s firefighting program.

After the meeting, Sen Jake Files, R-Fort Smith, chairman of the committee, told reporters that discussion of tax bill will pick up because of the recent reduction in the estimate of the Medicaid shortfall, which the governor has proposed using end-of-the-year surplus funds to cover.

The shortfall estimate was about $138 million at the start of the session, but the Beebe administration lowered the estimate to about $61 million last month.

“I thought this tax cut (for the military) was a great one to start with because it sends a message to our veterans, and our active military, and the guard and reserves that we appreciate them and want them here,” Files said.

He said the Senate does not have a set goal for tax reductions like the one Carter suggested last week, and that each proposal will be considered on its merits.

Files said he expects the committee to move forward on proposals to reduce the sales tax that manufactures pay for utilities and-or replacement parts because those would be job creators.

“I think that Arkansans would benefit from them immediately as well,” he said.