"While eliminating the income tax is not realistic for us in any kind of near term, getting ourselves into a more competitive position will help Arkansans get jobs," said Rep. Charlie Collins, R-Fayetteville, who also chairs the tax committee.
Opponents of the cut, however, pointed to a study by the Institute on Taxation and Economic Policy that said Arkansas taxpayers who making more than $155,000 a year would receive half of the total benefits resulting from the cut.
"This bill would just exacerbate the current overall regressivity of the system," said Rich Huddleston, executive director of Arkansas Advocates for Children and Families.
The panel tabled a separate proposal backed by Huddleston's group that would have created a state Earned Income Tax Credit for low-income Arkansans. That measure would have cost the state about $40 million a year.The panel also endorsed Carter's proposal to increase the income tax exemption on capital gains of at least $5 million from 30 percent to 70 percent. It would also create a 70 percent exemption for any net capital gains relating to the sale of Arkansas property acquired after Jan. 1, 2014. State finance officials estimated the cut would cost the state $3.1 million next year, and said that figure would grow to nearly $28 million by 2017. The Arkansas Department of Finance and Administration, however, warned that the figure could grow if Carter's proposal is challenged in court for giving preferential treatment to Arkansas property. In a fiscal impact statement submitted to lawmakers, the department said that treatment likely violates the commerce clause of the U.S. Constitution. If that challenge is successful, the revenue loss from the cut could reach $60.4 million by 2017, the statement said. Carter said he'll look at changes to address that concern but said he wasn't sure whether the department's legal analysis was correct. Carter said the intention of his bill was to help spur investment in Arkansas.