A matching bill passed the Senate 33-0 Monday.
The legislation would cut taxes for the approximately 500,000 Arkansans who make less than $21,000 annually. It would also set up a legislative task force to study ways to make Arkansas’s tax structure fairer and more competitive with other states.
Rep. Mathew Pitsch:
The reason we have the task force in this bill is because our Governor wanted to get this tax cut out, but he wanted to show commitment to doing real tax reform in our state. With the passage of this bill, out of 1.5 million Arkansas taxpayers…we will in the last 25 months have handed 1,346,000 Arkansas taxpayers a tax cut.
Another bill sponsored by Rep. Warwick Sabin to create an earned income tax credit (EITC) for low-income Arkansans was skipped today, thereby avoiding a vote on the House floor.
While both pieces of legislation are aimed at helping low-income Arkansans, only Gov. Hutchinson’s plan is an actual tax cut. While Arkansans would have to work in order to receive the earned income tax credit, it’s more accurate to call the EITC a tax subsidy rather than a tax cut.
Under the Governor’s tax cut plan, taxpayers earning less than $21,000 would see either a reduction in their tax bill or, in the case of those making less than $4,300 annually, a complete abolition of their tax liability.
In other words, these taxpayers would just keep more of what they earn.
That’s not what would happen under an EITC program. Under the EITC, a kind of cash transfer system between the state government and a low-income earner would be established. If the tax credit owed an individual is greater than his/her tax liability, the government would make up the difference by refunding the individual the difference.
The federal EITC program is also rife with fraud and abuse, as the Department of Finance and Administration noted in their analysis of the legislation. According to the Treasury Inspector General’s Office, approximately one-quarter of EITC claims at the federal level were issued improperly.
Given the realities of the EITC, the House deserves credit for favoring true tax reduction legislation over another subsidy program prone to fraud.