Hutchinson talks budget, in general terms | Arkansas Blog

Tuesday, January 20, 2015

Hutchinson talks budget, in general terms

Posted By and on Tue, Jan 20, 2015 at 3:10 PM

click to enlarge THE GOVERNOR SPEAKS: And says the big announcements are happening later.
  • THE GOVERNOR SPEAKS: And says the big announcements are happening later.
Gov. Asa Hutchinson invited reporters to his conference room this afternoon to talk about the state budget in general terms. Benji Hardy may have some details to add, but early reports indicate:

* PRIVATE OPTION: His mind is made up. He'll reveal his thinking Thursday. My dollar to your doughnut that he preserves it, though does so in a way that he'll say he's backing something entirely different, but which still keeps Obamacare dollars flowing to Arkansas.

* TAX CUTS: He may delay some previously scheduled. We already know he has proposed a delay in a previously approved cut in the top marginal income tax rate from 7 to 6.9 percent. He's increasing everyone in that bracket's tax bill this year, in other words. What else? He was never so supportive of the industry sales tax breaks that vanquished opponent Mike Ross favored. But the phase-in has been described as vitally important to business.

* SPENDING: There will be cuts in some agencies. "Savings," is the word he prefers. He promises not to cut education (obedience with the Supreme Court demands this) and higher education.

* HEALTH CARE: He promises to "broaden" the health care "reform" discussion. I'd guess this doesn't mean an expansion of government support of health care. So .....

UPDATE FROM BENJI:

Hutchinson said he’d most likely release his full budget next Tuesday at a meeting of the Revenue and Taxation committee. It’s finalized, he said, but still in draft form. He’s still talking to leaders from both parties about possible changes. He said that the delay in releasing the budget was not the result of any “glitch”, but was “just a matter of making sure we get feedback from the legislature.”

Hutchinson’s long-awaited speech on the private option will happen at 10 a.m. on Thursday at UAMS. (It’s open to credentialed press only.) Surely this choice of venue only increases the already very strong odds that he’ll support preserving the PO. As a university hospital that provides a great deal of charity care to the uninsured, UAMS strongly supports the policy. Chancellor Dan Rahn has been an especially vocal advocate.

If Hutchinson been in detailed conversations with legislators about finalizing the budget, surely he’s revealed in those meetings whether he’s supporting the private option, right? Former Gov. Mike Beebe explicitly and repeatedly made the case that the PO was an essential part of his budget, and that defunding it would blow a huge hole in the state’s finances. Hutchinson said he’s taken pains to do the opposite when speaking to legislators

“I’ve emphasized, don’t presuppose my position on PO based on this draft budget that we have,” he said. “I have always separated tax cuts from PO. I know that’s been linked in previous years; I de-linked them a long time ago.”

When a reporter asked him how, exactly, a program that brings in so much money to the state could be “de-linked” from the wider budget, he acknowledged that eliminating the private option would have a cost impact, but added “you’re also going to be eliminating some other costs.” (Editorial aside – Not quite. Those are hardly equivalent. The private option brings in over a hundred million extra federal dollars to Arkansas each year. There’s no question that eliminating it would be a huge net cost to the state, at least for the foreseeable future. It'll be interesting to see how this de-linking works.)

Then there are the other tax cuts. Hutchinson noted that there are four separate cuts from 2013 that are going into effect this year: the 0.1 percent income tax cut championed by Rep. Charlie Collins, a capital gains exclusion, an increase to the personal exemption and a new break on energy purchased by manufacturers.

“I’ve announced my position on one,” Hutchinson said, referring to his endorsed delay of the 0.1 percent cut. “The others, that’s what I’m getting feedback from the legislature on. I’ve got my views on that; it’ll be announced next week.” However, he added, “let me assure you that all of those tax cuts will not be delayed. They’ll be treated differently and separately, depending on my priority of lowering the income tax for the middle class.” If that's the case, the capital gains exemption – which would benefit only a small number of the very wealthy – would seem to be of lowest priority. We shall see.

When asked about cuts to state agencies, Hutchinson said “there will be certainly some savings.” As Max noted above, that means “cuts.” However, he added, they would be targeted. “The previous administration said a one percent across the board cut to all state agencies … that will not be the case.”

UPDATE FROM MAX: Here's a link to projected impact of Hutchinson's income tax cut, more than $100 million in second year. A wrinkle I just thought of. Married taxpayers of similar income know that you get a state tax break by filing separately on the same return.

NEW WRINKLE: Hutchinson's tax cut would be a whale of a tax break for a family with $150,000 income split between two $75,000 earners. While a family with a sole earner making $150,000 would pay an income tax rate of 7 percent (eventually 6.9 percent) on all income over about $35,000, the married double earners would pay only 6 percent on the amount over $35,000 up to $75,000. Two households, same total income, but different taxes. (UPDATE: My estimate for $3,000 difference was too night. DFA says the difference would be $1,874 for a no-dependent couple, one with split income, one with a single source of income.) That's progressive, after a weird fashion, I guess. Encourages spouses to work, I think. This and the bracket cliffs at $21,000 and $35,000 are just strange tax policy to me, however. A single sliding progressive scale makes more sense, but is more expensive to implement.

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