Income tax exemption for working poor advances

from The Northwest Arkansas Morning News

By Jason Wiest

LITTLE ROCK -- Arkansans living at or below the poverty level would be dropped from the state income tax roll under a bill advanced by the House Revenue and Taxation Committee on Thursday.

House Bill 1443 is part of a $319 million tax reduction package agreed to by Gov. Mike Beebe and House leaders. Beebe signed the centerpiece of the package into law Thursday, reducing the state sales tax on groceries by 50 percent beginning July 1.

Also Thursday, the House approved legislation to reduce the state sales tax manufacturers pay for utilities by 2 percent over two years. The House tax panel earlier advanced an identical Senate version.

Arkansans earning up to 33 percent above the poverty level would pay only a portion of the state income tax, said Rep. Keven Anderson, R-Rogers, the bill's sponsor.

"The tax is brought on slowly once you cross the poverty line, so you're not hit hard on dollar one once you cross the threshold," Anderson told the committee.

If the federal poverty level increased, so would the exemption, he said.

Arkansans filing for withholding would have to file for a refund, he said.

Rich Huddleston, executive director of Arkansas Advocates for Children and Families, praised the committee for endorsing tax relief for the state's low income families.

"It gets us off that bad, short list that you don't want to be on of states that impose income taxes on families below the poverty line," Huddleston said.

For an individual, the federal poverty level is $9,800, and $20,000 for a family of four.

In conjunction with halving the grocery tax, the bill makes this session one of the best ever in terms of tax relief for low-income families, he said.

A number of tax relief bills remain inactive in the committee, and Anderson, the committee chairman, said they probably will not be considered because of the agreement with Beebe that is pushing the tax-cut package through the Legislature.

The low-income break would cost about $32 million over two years and the manufacturers' utility tax cut would cost about $35 million.

With all the tax relief provided for in the package, the state budget is tight now, Anderson said.

"We'll have to be very diligent now with what we let out and we've agreed that the governor will be heavily involved in any decision to let anything else out with fiscal impact."