Strike up the band! Start a parade! Have you heard the news? This year the Arkansas General Assembly passed a law to exempt military retirement pay from the income tax.
So why isn’t Conduit For Action joining in the celebration? Conduit For Action supported a proposal to exempt military retirement pay from income tax, but did not support this SNAFU because it used veterans as pawns to raise the tax burden on Arkansans.
While politicians are patting themselves on the back for providing some tax relief to veterans who are receiving military retirement … their celebration of the legislation is a lie by omission.
Instead of reducing the tax burdens, the legislation increased the tax burden on Arkansans. Even veterans with military retirement pay will have some of their tax benefit eroded by new taxes in the bill.
WHAT THE BILL DID AND DID NOT DO
The military retirement pay exemption was passed as HB1164 by Representative Charlene Fite and became Act 141 of 2017.
How does it help veterans? The new law benefits only veterans who receive military retirement (or survivor benefits based on military retirement) by exempting the retirement pay from the Arkansas Income Tax. It is estimated to be a cut of $6.7 million when it takes effect in mid-fiscal 2018 and then by $13.4 million in fiscal 2019. Lynne Reynolds, the income tax administrator of the Department of Finance and Administration said the average benefit to those with military retirement pay will be $462 a year.[i]
The benefit to veterans with military retirement pay is the only part politicians want to talk about.
When pressed further, Governor Asa Hutchinson and some state legislators will tell you the bill also includes an “offset” to balance the budget. What they mean by “offset” is NEW TAXES. For most Arkansans all you get under the legislation is the privilege of paying new taxes.
Politicians can’t even be straight with you about the “offset.” It is more than an offset – it is a $5.9 million tax increase on Arkansans.
Where does this dollar amount come from? According to the legislature’s nonpartisan Bureau of Legislative Research beginning in Fiscal Year 2019 the legislation will collect $5.9 million more than any tax cuts provided in the legislation. For Fiscal Year 2018 the legislation will collect $3 million more than it gives in tax benefits. See: “General Revenue Estimated Impacts of the 91st General Assembly, 2017 Regular Session,” in the 2017 Summary of Fiscal Legislation, by the Bureau of Legislative Research
THE BILL IS A TAX INCREASE – SO WHERE DOES THE MONEY GO?
Could the $5.9 million tax increase have been just an accident because of a bad calculation in putting the bill together? NO!
The very first two sections of the bill are not about a tax cut. Instead they are about transferring tax money to the Medicaid Trust Fund. How much will be transferred? Would you be surprised if I told you $5.9 million?
Section 1 of the bill sends $5.9 million to the Medicaid Trust Fund in 2018 and $2.9 million this fiscal year. Is the $5.9 million being sent to the Medicaid Trust Fund and the $5.9 million in additional taxes on Arkansans’ just a COINCIDENCE? Of course not!
Why send the money to the Medicaid Trust Fund? In 2013 Democrats and some Republicans bought into the idea that if Arkansas would adopt Obamacare Medicaid Expansion then a flood of federal money would solve all our Medicaid financing problems. Well guess what – Obamacare Medicaid Expansion is no longer free, and Arkansas must pay part of the costs. Politicians are looking for ways to pour more of your money into the program. (Obamacare Medicaid Expansion is primarily for able-bodied working age adults who don’t work)
The politicians who just can’t stop bragging about the military retirement pay exemption scammed you. They used our appreciation for our veterans as a front to raise taxes. Instead of honoring veterans the politicians used veterans as pawns to tax us more.
WHAT ARE THE NEW TAXES AND WHO MUST PAY?
The legislation added these new taxes:
- An INCOME TAX on unemployment compensation,
- A SALES TAX on internet downloads, and
- A SALES TAX on soft drinks and candy.
There are issues with each of these taxes; for here we will only address two reasons why the sales tax on soft drink and candy is especially disturbing:
- Former Governor Mike Beebe worked for years to lower the state sales tax rate on groceries. Although you may be thinking “Maybe this is not a big deal to put the full state sales tax rate on these two grocery items, since soft drinks and candy are junk food.” But it is a big deal because this is the first time any grocery items have been carved out for full taxation after so many worked so hard to lower the tax rate on groceries. What grocery items will politicians want to carve out for increased taxes next time? Will Governor Beebe’s accomplishment of lowering grocery taxes eventually be wiped out?
- While most politicians had no qualms about treating these two junk food items differently in order to tax them higher, politicians refused to treat the items differently when Representative Mary Bentley filed HB1035 of 2017 to try to remove junk food as items that can be purchased under SNAP (food stamps).
Who will pay the new taxes? Everybody, even veterans who qualify for the military retirement exemption. It is disturbing that most veterans who served honorably, perhaps with difficult and distinguished service only get more taxes. Our active military also get …. more taxes. Everyone gets taxes from the legislation.
THE OTHER TAX CUT IN THE LEGISLATION
Politicians spend lots of time bragging on the average $462 benefit provided for veterans who have military retirement pay, but they don’t tell you about the other tax benefit in the legation. The legislation provided a special benefit for soft drink manufactures. Yep, you pay for that too.
HOW THEY VOTED
Governor Asa Hutchinson said he had to have the “offset” to support the bill. (Which we now know is a $5.9 million tax increase.) Here is how the legislators voted:
BRAGGING WHILE OMITTING THE FACTS.
Some legislators are bragging on this legislation as a big accomplishment.
What do you think about these politicians who used veterans as pawns to raise taxes by $5.9 million a year?