Hutchinson's tax cut push and its connection to the private option vote | Arkansas Blog

Monday, December 29, 2014

Hutchinson's tax cut push and its connection to the private option vote

Posted By on Mon, Dec 29, 2014 at 3:56 PM

click to enlarge TAX CUTS NOW: Then Asa Hutchinson plans a private option vise on Democrats later.
  • TAX CUTS NOW: Then Asa Hutchinson plans a private option vise on Democrats later.
You've perhaps read that Gov.-elect Asa Hutchinson, with help from House and Senate leadership, hopes to push his $100 million income tax cut through in the early days of the 2015 legislative session.

It's irresponsible.

Here's the deal.

We could have a long debate on the wisdom of the tax cut at all against huge state needs — prisons, teacher insurance, more parole officers. We could point out the many studies that show the fallacy of tax cuts as economic stimulus. We could point to Sam Brownback's Kansas disaster. But Hutchinson has promised cuts in the top marginal income tax rates for middle income earners and he wants a scalp to show he has delivered on that promise. He has the votes. He'll get it.

I get that. But he could come up with equivalent tax cutting and improve it by doing away with the fractional marginal tax cut Rep. Charlie Collins passed in 2013 legislative session — at a cost of more than $50 million and mostly to the benefit of the richest taxpayers. It doesn't take effect until next year. Eliminating it and widening and making more progressive the brackets for middleincome taxpayers would be just as beneficial and fairer. It would also eliminate the confounding tax bracket cliffs that are a factor in Hutchinson's tax cut plan. As we explained here earlier, the Hutchinson plan creates a dual marginal rate:

People making more than $75,000 a year would continue to pay 7 percent on income above $34,000. People making less than $75,000 would pay 6 percent on income between $34,000 and $74,999, but lose that reduction of they made more. The not-hypothetical result: A difference in income of $2 — from $74,999 to $75,001 — would cost the taxpayer $410 in taxes on an additional $2 in income. This turns progressive taxation upside down. The same "cliff" exists on the marginal rate reduction Hutchinson proposes on income between $20,000 and $34,000. There, a $1 difference in income — between $33,999 and $34,000 — could cost you $140, the difference between a 5 and 6 percent top marginal rate. 

But forget the bracket cliff issue.

What will Hutchinson do if he cuts taxes $100 million, on top of at least $50 million in cuts in the pipeline, plus the capital-gains exemption for billionaires, and then the legislature doesn't continue the private option Medicaid expansion, with the tens of millions it provides to shore up the state Medicaid budget?

Here's where the political strategery comes in. Hutchinson wants to pass his tax cut first and then dare Democrats not to go along with every punishing and mean amendment to the private option insurance plan necessary to secure enough Tea Party Republican votes for passage. If Democrats object, they'll be painted as foes of an income tax cut.

Democrats can roll over on the tax cut. They can roll over on the private option vote. They can roll over on all the odious amendments. But none of that guarantees the votes from extremist Republicans to pass the private option.

The Republicans are beginning to verge on the hubristic in their victory dance.

One of the Republican lobbyists in league with the Hutchinson political angling proclaimed on a TV talk show with me last week that Democrats would seal their doom if they resisted a vote to extend the private option in the course of negotiating decent terms. This from the same party  that won a sweeping legislative majority by victories of candidates who said the private option was Obamacare and anybody who voted for it deserved to be defeated. Can the Republican message machine really win this both ways? It's good to vote against Obamacare when we do it? Bad when Democrats do it? In a world where facts don't matter, perhaps.

I confess, were it not for the real cost to real people with new health security, you'd almost like to see the Arkansas Republicans get Kansas — huge tax cuts and no Obamacare. And no place to put all the criminals they want to lock up. We couldn't even afford the private gulags in Louisiana. 

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