This was a historic week for the General Assembly. Not only did we pass a one of a kind health care reform measure, but we also passed one of the largest tax cut packages in state history.
The bill to appropriate the funding for the Health Care Independence Act passed the House on Tuesday with a vote of 77-23.
If enacted, Arkansas will have a unique plan in place to offer private sector insurance plans to our lowest income residents using federal Medicaid dollars.
This is expected to save our small businesses over $25 million a year in fees. These are businesses which otherwise would have been charged for not providing insurance plans to employees. It is also expected to reduce the cost of uncompensated care on our hospitals and ultimately the insurance premiums of every Arkansan.
In addition, it is expected to have a favorable impact on our state budget. That is why minutes after the appropriation passed, the House began passing a series of tax cut measures.
These include reducing the state income tax, increasing the standard deduction, reducing the tax on capital gains, reducing the sales tax on energy for manufacturing, and if budget conditions allow, reducing the sales tax on groceries.
The amended version of the income tax reduction provides relief to every Arkansan paying income tax. It does so by reducing the amount by 1/10th for every income tax bracket. Those in the bracket currently paying 1% will see the reduction next year. The other brackets will see the reduction in fiscal year 2015.
The package also provides relief to Arkansans who do not itemize their taxes but instead rely on the standard deduction. It does this by increasing the standard deduction from $2,000 to $2,200. Last year, over 340,000 Arkansans filed using the standard deduction.
The legislature began reducing the grocery tax in July 2007. Previously groceries were taxed at 6%, the same rate as any other purchase. For the last 4 sessions, the General Assembly has continued to reduce this tax. It now stands at 1.5%. With the tax bills passed by the House this week, the rate will be reduced to 1/8th of a cent. This would only take effect if budget obligations, such as the Pulaski County desegregation payments decline.
The tax cut we are providing to manufacturers for energy costs is an ongoing economic development incentive. The legislature has continued to cut away at this tax, which was at 6% several years ago. There are some estimates this has saved manufacturers $24 million over the course of the last 3 sessions. This is done to make Arkansas more competitive with other states in order to recruit more industry, which in turn ultimately increases the tax revenue for the state.
All total the tax cuts are expected to save Arkansans close to $10 million next year and close to a $100 million in the next.
Over the course of the last three months, we have worked together to accomplish what is best for Arkansas. Although our work for the session may be coming to a close, our work for districts has not. The interim has consistently been used to learn more about the issues facing our state and how we can address them the next time we convene. So we will continue to update you weekly during the interim as well.