Arkansas Gov. Mike Beebe (D) has proposed a 1 cent cut in the state’s sales tax on groceries in the $4.5 billion balanced budget his administration presented to legislators recently.
The governor’s proposal continues his push to eliminate the state’s tax on groceries, which was part of his campaign platform when he ran in 2006, according to John Theis, the state’s assistant revenue commissioner.
When Beebe was elected, the sales tax on groceries was the same as for other goods, 6 cents on the dollar. The sales tax on groceries was cut in half in 2007, with the change receiving overwhelming approval from legislators. The measure passed the Arkansas House 99-1 and the Senate by 35-0.
Theis wouldn’t speculate what the vote would be this time because there were several changes in the state’s House and Senate during the November elections. However, if the vote goes along party lines the measure should pass easily in the Democrat-controlled Arkansas Legislature.
Slower Economy=Weaker Support
Though there’s been support for elimination of the sales tax on groceries for some time, according to Matt DeCample, spokesman for the governor’s office, the proposed cut is receiving more mixed reactions than the proposal did two years ago. He attributed this to the slowing economy.
“The governor has proposed a very conservative budget, and this [proposal] continues the promise that he ran on. This is one of the most regressive taxes that we have,” DeCample said.
“While economic times are tight and tough decisions will have to be made with regards to spending, I believe the greater harm would be to go back on my word to the people of Arkansas,” Beebe said when announcing his proposed budget in November. “Middle-class, working families are the heart of our state and of our economy, and they deserve this help.”
Some legislators want other tax cuts, and others want none at all, DeCample said.
Some Want More Spending
Rep. Chris Thyer (D-Jonesboro) supported the cut in the grocery sales tax two years ago but questions the logic of reducing it further while not funding Medicaid increases or a new state prison.
“Help my thought process here on what sense it makes to have all of these $145 million in what the administration is calling needs, yet at the same time taking another penny off the grocery tax,” Thyer said during the budget hearing.
Beebe responded the cut would not affect Medicaid or prison funding.
The grocery tax cut would reduce revenue about $30 million a year, and the governor did not propose to increase another tax to offset it.
“We will finish the current biennium with a surplus of about $300 million,” Theis said. “While that will not support full elimination of the sales tax on groceries, the governor felt we could take this step. We’re going to try to fund this out of growth in the budget.”
Times Add to Challenge
Making such a move in economically sensitive times could be challenging, Theis acknowledged.
“In Arkansas, we haven’t been hit by the economic slowdown as hard as some other states have been, but we are starting to feel the effects and will probably feel them more [in 2009],” Theis said.
Beebe’s budget included a sharp reduction in expected general revenue funding, Theis said. “We’ve also taken a step that hasn’t been seen in usual budget recommendations, by asking the legislature to go ahead and appropriate the money represented by these reductions. That way, if the economy stabilizes and revenues grow, this restored funding will already be in place, and ensured to flow where it is critically needed.”
The governor’s proposal could compete with yet-undrafted proposals for other tax changes, DeCample said. During the 2007 session, in addition to cutting the sales tax on groceries, the legislature raised the homestead exemption on property taxes from $300 to $350 and removed 81,000 citizens from the state’s income tax rolls.
Phil Britt ([email protected]) writes from South Holland, Illinois.