Gov. Mike Beebe said Wednesday that the timing of tax cuts being considered by the House is a concern because they wouldn’t take advantage of health care expansion.
The House Revenue and Taxation Committee has endorsed proposals that would cut the capital gains tax and the state income tax.
The governor told reporters Wednesday that if approved by the Legislature, the tax cuts would take effect before July 1, 2014. That is when the state would start to see savings from the expansion of health insurance coverage proposed under the federal Affordable Care Act.
The law proposes that states extend Medicaid coverage to people earning up to 138 percent of the federal poverty level, but the Obama administration has said Arkansas could use federal Medicaid dollars to pay for those people to buy private health insurance plans through the state insurance exchange instead of expanding the state Medicaid rolls. That option would save the state $670 million over 10 years, the state Department of Human Services said Wednesday.
“The big problem with (the proposed tax cuts) is the effective date,” Beebe said. “What I’ve said all along is we can afford some tax cuts if we do Medicaid expansion, but Medicaid expansion doesn’t get any savings until fiscal (year) ‘15,” Beebe said. “So the effective dates of some of these tax cuts have to coincide with that or else you gut the ‘14 budget.”
He said any tax cuts “need to be scaled in such a way so they take effect, for the most part, in fiscal ‘15.”
The governor said he has discussed the time issue with House and Senate budget leaders.
The House committee on Tuesday endorsed cuts in the state income tax and the capital gains tax that by fiscal year 2017 would total nearly $85 million.
House Bill 1585 by Rep. Charlie Collins, R-Fayetteville, would raise the minimum income level for the top state income tax bracket from $34,000 to $44,000 a year and reduce the tax rate for that group from 7 percent to 6 7/8 percent. The bill is estimated to cost the state $57 million a year.
HB 1966 by House Speaker Davy Carter, R-Cabot, would increase the tax exemption for net capital gains on existing Arkansas investments of more than $5 million from 30 percent to 70 percent. It would create a 70 percent exemption for capital gains on all Arkansas investments made Jan. 1, 2014, or later.
House Speaker Davy Carter, R-Cabot, said he understood the governor’s viewpoint and was willing to discuss it with him.
“We agree on a lot of things. I think we would disagree that all of the tax reduction moneys come from that source (health care expansion),” he said.
Sen. Pro Tem Michael Lamoureux, R-Russellville, said he knew of the governor’s concerns and planned to talk with Carter about them. He also said he expects the House and Senate to reach an agreement on the amount of taxes they would like to cut next week, and he expects HB 1585 to be part of the equation.
“I understand the governor’s point. I don’t resist his point,” Lamoureux said. “I do agree that expansion would help the budget in general.”
Reporter John Lyon contributed to this report.