Tax panel rejects earned income credit bill

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The House Revenue and Taxation Committee on Thursday rejected a bill that would create a working income tax credit equal to 10% of the federal working income tax credit for low- and middle-income workers.

Rep. Tippi McCullough’s House Bill 1418, D-Little Rock, is expected to cut state revenue by $76.7 million in the 2020 fiscal year that begins July 1, the Treasury Department reported. and State Administration. The forecast is based on information from the Internal Revenue Service that shows 287,000 Arkansas taxpayers received the federal earned income tax credit in 2017.

The House committee then approved Senator Keith Ingram’s Senate Bill 196, D-West Memphis, to provide tax incentives for investments in the state’s 85 troubled opportunity areas.

Governor Asa Hutchinson designated these areas under the Federal Jobs and Tax Reduction Act of 2017.

SB196 is expected to reduce state revenue by $1 million in fiscal year 2019, which ends June 30, and then by $2.6 million annually between fiscal year 2020 and fiscal year 2026. , the finance department reported.

[RELATED: Complete Democrat-Gazette coverage of the Arkansas Legislature]

But then the measure is expected to increase tax revenue by $13 million in fiscal year 2027 and $4.3 million in fiscal year 2028.

Thursday’s action came two days after the committee recommended House approval of Senate Bill 211 that would implement Hutchinson’s plan to cut the personal income tax rate on the state’s highest from 6.9% to 5.9% over two years. SB211 cleared the Chamber on Thursday afternoon. State officials predict it will reduce state tax revenue by about $97 million a year after its full implementation.

The House Revenue and Taxation Committee is made up of 18 Republicans and two Democrats.

In a voice vote, the committee declined to recommend McCullough’s HB1418 for approval. Similar legislation has failed to clear the legislature in recent years.

McCullough told the committee that an earned income tax credit “is an idea that is rooted in the value of rewarding hard work and is legislation that was originally signed into federal law by President Ronald Reagan.

“I say this is to remind the committee that this idea has deep roots in the Republican Party and has found bipartisan support across the country,” she said. Twenty-nine states have an earned income tax credit, she said.

McCullough said HB1418 would give 312,000 Arkansas households “real tax relief.” It would help families with three children earning up to $54,000 a year or a single mother with one child earning up to $40,000 a year.

“We can more than pay for [the credit] limiting the governor’s tax cut plan to those earning more than $456,000 a year, which would affect 14,000 people,” she said.

Paul Gehring, a deputy commissioner of state revenue, said Hutchinson “wanted to make it clear that he was not philosophically opposed to granting some type of earned income tax credit in the ‘Arkansas”.

The Legislature in 2015 enacted personal income tax rate reductions for individuals with taxable income between $21,000 and $75,000 per year and in 2017 enacted rate reductions for approximately $725,000. people with taxable income below $21,000 a year that went into effect Jan. 1, he said. The first cuts were expected to reduce revenue by $100 million per year and the later by $50 million per year, he said.

“There just isn’t enough room in the budget right now to provide that kind of relief right now,” Gehring said, estimating that HB1418 would reduce revenue by about $76 million a year.

Bruno Showers, senior policy analyst for Arkansas Advocates for Children and Families, countered that low- and middle-income Arkansans still pay a higher share of income in state and local taxes than high-income Arkansans, despite cuts. income tax for 2015 and 2017. .

OPPORTUNITY AREAS

In a voice vote, the committee recommended House approval of Ingram’s SB196 that would adopt the Federal Tax Code provisions for opportunity zones for tax years beginning January 1, 2018.

Taxpayers could defer tax on a capital gain from an investment in an opportunity area if they invest the money in a qualified opportunity fund, according to the finance department.

Taxpayers can delay recognition of a gain until the end of 2026 and exclude 10% of the gain if the fund investment is held for five years, and exclude 15% of the gain if the investment is held for seven years , the Ministry of Finance said in its report. legislative impact statement on the bill. Taxpayers can completely exclude any gain on any further appreciation of the qualifying investment if the fund investment is held for 10 years.

Rep. Robin Lundstrum, R-Springdale, cited a letter from Republican U.S. Rep. French Hill in his pitch for SB196 to the House committee.

Noting that Central Arkansas’ 2nd Congressional District includes 14 Opportunity Zones, eight of which are in Pulaski County, Hill wrote that he supports Lundstrum and Ingram’s efforts “to provide tax relief from state and capital gains tax on investments made in opportunity zones”.

“Reducing this high marginal cost of capital will improve our state relative to our peer states when considering capital investments in opportunity areas,” Hill wrote. “Without this important legislation, Arkansas will once again be uncompetitive.”

Gehring said the Treasury Department expects the bill to reduce tax revenue by about $19 million from fiscal year 2019 to fiscal year 2026, and then “you’ll recover about $17.3 million over the course of fiscal year 2027 and fiscal year 2028”.

The Department of Finance “speaks against the bill…because this impact on revenue over the next eight years is not reflected in the budget,” he said.

But Lundstrum said: “It’s about stimulating economic development in depressed areas.

“While it may impact a long-term budget, as soon as these projects start, taxes will be levied every time a piece of wood or a piece of dirt turns over,” she said. “There’s no way to calculate what local investment is going to do in a depressed area.”

When asked if the governor planned to veto the bill if the House approved it, Hutchinson spokesman JR Davis said in an email that “he will investigate further before the budgetary impact as it moves through the House”.

A section on 02/15/2019


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