Arkansas lawmakers on Thursday approved cutting the state's taxes on groceries, used cars and manufacturers' utility bills, becoming one of the first states to adopt significant tax relief while other statehouses are grappling with massive spending cuts and deficits.
The state Senate gave final approval to the three tax cut measures, agreeing with amendments to the reductions the chamber had already approved. The measures now head to Gov. Mike Beebe's desk. They are part of a package of $35 million in tax cuts Beebe plans to sign into law.
The centerpiece of the proposals is a half-cent cut in the state's sales tax on groceries that Beebe has advocated. The cut is estimated to cost the state nearly $21 million in the coming year.
Beebe, a Democrat who won re-election last year on a pledge to continue cutting the grocery tax, initially said that cut was the only one the state could afford in his $4.6 billion proposed budget. He's since agreed to sign five other tax cuts into law.
Since taking office in 2007, Beebe has successfully pushed for cutting the sales tax from 6 percent to 2 percent. The latest move will reduce it to 1.5 percent.
"It's going to mean another half cent off their basic needs of life," Beebe told reporters Wednesday. "We've gone now from six to one and a half, and we're not through. You've got to do it as you can afford to do it. I would have liked to done more than half."
One of the other cuts reduces the tax manufacturers pay on utilities and phase in a tax cut for high efficiency power generators. The Senate also approved a bill to raise the used car sales tax exemption from $2,500 to $4,000. The tax cuts passed unanimously in the 35-member Senate.
The House also gave final approval Thursday to an annual sales tax holiday on clothing and back-to-school items. That measure passed 88-0 in the 99-member House.
On Wednesday, the Senate gave final approval to a reduction in income taxes for single parents with more than one child and passed a tax break for tourism-related businesses in the Arkansas Delta.
Beebe said he agreed to the additional tax cuts to avoid larger tax reductions that he said could have had on the state's budget. The tax cuts this year may mean that a proposed cost-of-living increase for state workers may be limited to lower-paid employees or eliminated altogether.
"We're being responsible I don't think we kicked grandmothers out of the nursing home," Sen. Larry Teague, the chairman of the Senate Revenue and Taxation Committee, said shortly before the vote. "We're giving businesses some help and we're giving individual taxpayers help. I think that's a good thing."
Republicans in the majority-Democrat Legislature had pushed for even more tax cuts, including a capital gains reduction that was approved by the House but defeated by a Senate panel. State officials estimated that tax would have cost the state $44.5 million.
But GOP leaders said they were pleased with compromise.
"I don't know of many scenarios where it's not good to put money back in the hands of taxpayers, especially today," said Rep. Davy Carter, R-Cabot, chairman of the House Revenue and Taxation Committee.
About one in five governors are proposing large tax cuts this year, and several are states with a budget shortfall, according to the Center on Budget and Policy Priorities. In many of these states, such as Florida and New Jersey, the tax relief is coupled with calls for cuts in education, health care and employee salaries.
Arkansas has escaped the fiscal problems plaguing many other states partly because of the state's budgeting system, which requires that spending priorities be linked directly to expected revenues.
Beebe and legislative leaders over the weekend began negotiations on the major budget bill, and he has said he doesn't want proposed spending increases for public schools or prisons to be affected by the cuts.
Associated Press writer Chuck Bartels contributed to this report.