LITTLE ROCK (AP) — Gov. Mike Beebe said Monday he’s prepared to find room in his proposed budget for tax cuts on used cars and on manufacturers’ utility bills after a Senate panel advanced the proposals along with Beebe’s call to cut Arkansas’ sales tax on groceries.
In addition to a half-cent cut in the sales tax on groceries, the Senate Revenue and Taxation Committee advanced measures to cut the state’s sales tax on used cars and on manufacturers’ natural gas and electricity costs. The Senate is expected to vote on the three proposals Tuesday.
The cuts were approved days after the House passed its own trio of tax cut measures, despite Beebe’s warning that they could threaten the state’s budget. Beebe has said there’s only room in his budget for the grocery tax cut, which would cost the state $20.8 million in the fiscal year starting July 1.
After fighting the House-led tax cut proposals — primarily a $44.5 million cut in the capital gains tax — Beebe indicated Monday he was more willing to give on the used car and manufacturers’ tax cut proposals approved by the Senate panel.
"I’m not out there trying to pass them, if that’s what you mean, but at the same time . . . I’m prepared to adjust for those other two," Beebe told reporters shortly after the vote.
When asked whether he would fight the Senate proposals as hard as the capital gains cut bill, Beebe said: "No, as long as they know what they’re doing and they’re prepared to adjust the budget, then so am I."
Senate leaders said they believed the House-backed tax cuts would face a steep challenge in being approved.
"I just think we’ve probably given up about all the money we can give up," said Sen. Larry Teague, chairman of the Senate panel and the chief sponsor of Beebe’s grocery tax cut proposal.
Beebe, a Democrat, won re-election primarily on his promise to continue cutting the sales tax on groceries. Since taking office in 2007, he’s successfully pushed to cut the tax from 6 percent to 2 percent. It appears assured to pass in the Senate, where 34 of the 35 members have signed on as sponsors.
Teague, however, expressed some reservations about the cut.
"It’s the only tax cut some people pay. It provides stability to tax collections in down times . . . I voted for it and I obviously support it, but I don’t love it," said Teague, D-Nashville.
Senate leaders have also backed raising the exemption on used car sales from $2,500 to $5,000. The proposal would cost the state $5.8 million in the coming fiscal year and $7.4 million the following year. The proposal is backed by Senate President Paul Bookout, D-Jonesboro, along with the Republican and Democratic leaders of the Senate. Twenty-one senators have signed on as co-sponsors.
"It helps the regular working person out there buy a little better used car," said Sen. Gilbert Baker, R-Conway, the tax cut proposal’s chief sponsor. "That money in saved used sales tax will flow back into the economy."
The manufacturers’ utility tax cut mirrors a proposal passed by the House last week to cut the sales tax manufacturers pay on natural gas and electricity from 3.25 percent to 2.75 percent. Unlike the House bill, it also includes a phased-in tax break for high efficiency power generators.
State officials estimate the tax would cost $7.04 million in the coming year, but would cost $20.85 million by the fiscal year beginning July 1, 2013.
House and Senate leaders have said both chambers in the majority-Democrat Legislature will have to negotiate on which cuts to eventually send to Beebe’s desk. Republicans are looking at reducing Beebe’s proposed spending increases in his $4.6 billion budget to help pay for the tax cuts, primarily restricting a 1.86 percent cost-of-living adjustment the governor has proposed for all state workers.
Beebe has been most vocal about his opposition to the proposal by Rep. Ed Garner, R-Maumelle, to eliminate the capital gains tax on new investments in Arkansas companies and property. State officials say the proposal would cost the state $44.5 million if it goes into effect in the 2012 tax year, and would eventually cost the state $68.5 million annually — figures that Garner disputes.
The House approved that cut last week, along with a $3.8 million tax cut for manufacturers on utilities and a $3.7 million tax break for single parents. All three are now pending before the Senate Revenue and Taxation Committee.
Garner’s proposal faces an uncertain future in the Senate, where Beebe served for 20 years and remains influential. Garner said he hoped to get more support among the Senate and distribute information about estimates he has that show a lower impact the tax cut would have on Arkansas’ revenues.
"I don’t think there’s very much support if they truly believe (the state’s) impact study," Garner said. "There’s some support, but I don’t know if it’s enough. . . . It’s a good bill. The political rhetoric has just gotten out of hand on this."
Bookout said that he was worried about the impact the cut would have. An identical bill by Garner was approved by the House two years ago but rejected by a Senate panel.
"It’s something that I don’t believe here in the state we’re going to be able to afford to do," said Bookout. "It would be great if we could, but you can’t do everything."