By JOHN LYON
Arkansas News Bureau
LITTLE ROCK — In 1997, Republican Gov. Mike Huckabee’s pledge to sign a bunch of tax-cut bills the state could not afford set off a firestorm of criticism — and a frenzy among legislative leaders to reduce state revenues responsibly.
The loudest shrill came from Democratic leaders who decried what they said was a lack of leadership from the governor. At the time, Huckabee’s spokesman said Huckabee simply put the onus on Democratic lawmakers unwilling to decide between an income tax cut and phasing out the state’s grocery tax in a revenue-reduction atmosphere set by the Republican governor.
"He called their bluff," spokesman Rex Nelson said in news reports at the time.
One of the legislative leaders who refrained for public agitation was then-Sen. Mike Beebe, who instead mostly concentrated on behind-the-scenes negotiations that eventually formed a consensus for income tax and other reductions of about $70 million — at the time the biggest tax cut in Arkansas history.
Last week, it was second-term Democratic Gov. Beebe who threw out to determined Republican tax cutters the prospect that he might sign a slew of cuts he says the state cannot afford if they reach his desk, to show lawmakers "the ramifications of what they’re doing."
Three tax cuts passed the House last week over Beebe’s objections and more are up for consideration this week in the Senate, including a bill to double the sales tax exemption on used vehicles and the lone tax cut the governor supports, a half-cent reduction in the grocery tax.
In all, state fiscal officers estimate the state would lose more than $245 million in revenue if the dozens of tax-cut measures pending in the Legislature became law.
Estimates are that the state would take a hit of more than $60 million over two years from the three measures that passed the House last week, with the proposed elimination of capital gains taxes accounting for most of the loss.
The bills’ sponsors say that with $130 million in growth revenue projected for the next fiscal year, there is room for the cuts.
Some of that growth revenue is slated for prisons, public schools and cost-of-living adjustments, although lawmakers have eliminated a COLA for judges and prosecutors and have talked about eliminating increases for some or all state employees.
"That leaves between $40 million and $50 million," said Rep. Davy Carter, R-Cabot, chairman of the House Revenue and Taxation Committee. "I think that’s the frame in which everybody is looking right now."
On Monday, the Senate Revenue and Tax Committee is expected to take up Senate Bill 274 by Sen. Gilbert Baker, D-Conway, which would double the sales tax exemption on used vehicles from $2,500 to $5,000. Baker said he plans to amend the bill Monday to bring the number of co-sponsors to about 22 of the state’s 35 senators.
State finance officials say the measure would cost the state $5.9 million next fiscal year and $7.4 million the year after.
Also in the Senate tax committee on Monday, Sen. Bill Sample, R-Hot Springs, plans to present SB 275, which would reduce the sales tax on manufacturers’ utilities by one-half percent. A similar bill by Rep. Lane Jean, R-Magnolia, is among the House-approved tax-cut measures.
Fourteen senators have signed as co-sponsors of Samples’ bill, including five out of eight members of the tax committee.
The committee’s chairman, Sen. Larry Teague, D-Nashville, said he plans to present SB 276, the governor’s proposal to lower the sales tax on groceries Monday. All but one senator have attached their names to the bill.
Teague said the tax-cut bills that passed in the House last week will not be taken up in the Senate committee on Monday, but they could come up as early as Wednesday.
"We’re going to give them a chance to have their hearing and then we’ll figure it out," Teague said. "My guess is that they don’t all get out, but I don’t know."
Teague would not say which House bill he thought faced the biggest challenge in the committee. The bill that Beebe has spoken against most strongly is House Bill 1002 by Rep. Ed Garner, R-Maumelle, which would eliminate the tax on capital gains from the sale of property and companies acquired in Arkansas after July 1 and possessed for at least a year.
Beebe made his feelings known to House members before last Wednesday’s vote, and the bill that originally had 66 House co-sponsors wound up squeaking through in a 53-43 vote.
The governor said last week he would support cutting the sales tax on manufacturers’ utilities and providing income-tax relief to heads of households with two or more dependents "if we had the money." He said he opposes cutting the capital gains tax in what Garner pitched as an effort to boost job growth because of the cost and on philosophical grounds.
"Didn’t we just go through the biggest unemployment in recent years after they cut all those taxes in Washington?" Beebe said.
Garner says state finance officials have overestimated the cost of his bill and ignored the economic benefits of creating a climate that encourages capital investment.
Legislative leaders say it’s likely the grocery tax bill will not be the only tax-cut proposal to reach Beebe’s desk this session, but they do not expect lawmakers to pass more than the state can afford.
Baker, who co-chairs the Joint Budget Committee, said legislators understand that "in Arkansas, when you cut a tax, you are cutting a dollar in revenue, and when you spend a dollar through the budget process, you are spending a real dollar. So I think there will be a responsible approach to make sure that we maintain a balanced budget and maintain the services that are necessary."
"I’m for tax cuts as much as anybody up there," Teague said. "But I also want us to be responsible. I don’t want to kick grandmother out of the nursing home."