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Ark. House approves package of tax cut bills

Andrew Demillo and Michael Stratford, Associated Press

LITTLE ROCK, Ark. (AP) -- The Arkansas House on Tuesday approved proposals to cut income taxes, capital gains taxes, and taxes paid by manufacturers as lawmakers continued tweaking a $100 million package of reductions.

The votes came several hours after the Republican-controlled House approved the Medicaid "private option" bill. Democratic Gov. Mike Beebe has said savings from the plan could fund some of the proposed tax cuts.

The income tax proposal would lower the top income tax rate from 7 percent to 6.875 percent and increase the minimum income it applies to from $34,000 to $44,000. The reduction would take effect for the 2014 tax year, and would cost the state about $57 million each year.

Another proposal would reduce the sales and use taxes on natural gas and electricity used by manufacturers. State finance officials estimate that change would decrease state revenue by about $14 million next year and roughly $25 million in subsequent years.

The House also approved a bill that would increase the income tax exemption on capital gains greater than $5 million. It would also raise the standard deduction from $2,000 to $2,400 over several years. Those changes are expected to cost the state $3.7 million next year, growing to a $30 million annual loss in fiscal year 2017.

House members also approved legislation Beebe has proposed that would the grocery tax from 1.5 percent to 0.125 percent, but only if the state's bond obligations or school desegregation payments drop by $35 million over six months.

All of the measures head to the majority-GOP Senate, but the tax cut package remained in flux. The chairman of the Senate Revenue and Taxation Committee said several tax cut proposals were being changed to delay their effective date to the budget year that begins July 2014. That's when Beebe has said the state would see savings from the private option that could pay for most of the reductions.

The capital gains tax cut was also being amended to change the way the exemption is calculated and to raise the standard deduction to $2,200 rather than $2,400. It was not clear how much the amended version of that tax cut would cost the state annually.

"There's some negotiating, I'd say, going on just to make sure that members feel that we're getting something done in the next fiscal year," said Sen. Jake Files, R-Fort Smith. "We feel like there's money there to do it, but nobody's identified the specific points at which that money would come out."