House Bill 1162 passed through both the House and Senate last week; it will almost certainly be signed into law by Gov. Asa Hutchinson tomorrow.
This legislation, introduced by Rep. Charlene Fite, would create a state income tax exemption for military retirees while also levying higher taxes on soft drinks, digital downloads, and unemployment compensation.
One of the arguments used by proponents of this legislation is that it is “revenue neutral.” Some legislators have signed a pledge from Americans for Tax Reform (ATR) pledging to resist legislation that increases tax revenue to the state. Grover Norquist, President of ATR, wrote to legislators in late January to oppose this legislation, due to the “misguided tax hikes” it contained.
Fite responded with a quote in the Sunday edition of the Arkansas Democrat-Gazette.
From Arkansas Online:
But Fite, who has served in the House since 2013, said her House Bill 1162 is “revenue neutral” in its combination of increases and cuts and that Norquist has indicated that voting for “revenue neutral” legislation is not a violation of the taxpayer-protection pledge.
“So I am not sure why he is so upset about it,” she said in an interview last week. “I am not violating the pledge.”
In exchange for the military retiree tax break and cutting the tax on soft-drink syrup, HB1162 would increase the 1.5 percent sales tax on candy and soft drinks to 6.5 percent, levy income taxes on unemployment compensation and impose a sales tax on certain digital products to pay for these tax cuts.
The bill would become effective in the tax year starting Jan. 1, 2018. The Senate sent the bill to Republican Gov. Asa Hutchinson on Thursday and his spokesman said he will sign it into law this week.
In the same article, an ATR spokesman suggested that the legislation was “revenue neutral.”
From Arkansas Online:
Patrick Gleason, Americans for Tax Reform’s director of state affairs, said the group became involved in the debate over the bill because “Americans for Tax Reform is an organization that exists to oppose efforts to raise taxes.
“The tax package voted on by legislators [last] week included a number of misguided tax hikes. It’s odd that a tax on manufactured homes was discarded as a pay-for because it would disproportionately hit poor people, only to be replaced with other tax hikes that disproportionately harm poor people,” he said Friday in a written response to questions from the Arkansas Democrat-Gazette.
Gleason noted that “given the overall package was revenue neutral, lawmakers who voted for it did not violate the taxpayer protection pledge.”
Unfortunately, this legislation is anything but revenue neutral. According to an impact statement from the Department of Finance and Administration, it’s true that the bill would increase (in fiscal year 2018) the amount of general revenue from higher taxes by $9.7 million and reduce general revenue by $9.7 million.
However, $3 million of that reduction would come from a general fund transfer to the Medicaid budget. So what’s actually happening is that Arkansas taxpayers are paying $9.7 million more in taxes under this legislation, so that military retirees can have their income tax burden exempted by $6.7 million. Simultaneously, $3 million is being taken out of the state general fund and shifted to the Medicaid budget.
The bottom line: this legislation allows the state to take $9.7 million in additional revenue from Arkansans to give $6.7 million in tax relief to military retirees.
You could say that it’s “general fund neutral,” but you can’t say it’s “revenue neutral.” A revenue neutral measure doesn’t hike the amount of money taxpayers send to government. But HB 1162 does: by three million dollars. This is what, in simpler times, was known as a tax increase.
When presented with this information, Gleason e-mailed us back and said he would follow up with us tomorrow. We’ll update this post once he does. Fite didn’t return a call for comment. We’re sorry she didn’t get back to us: we would have liked to know where she got her information that HB 1162 was revenue neutral.