ASA!: Hutchinson crafted his tax proposal in populist terms and claimed it wouldn't lead to reductions in spending on state programs. On the "private option," he continued to dodge.
As Max has noted, Asa Hutchinson
debuted his tax plan in the first press conference of his gubernatorial campaign this morning. In his first year as governor, he said, his plan would reduce the income tax rate from 7 percent to 6 percent for people making between $34,000 and $75,000, and reduce the rate from 6 percent to 5 percent for those earning between $20,400 and $33,999. Hutchinson claims that it can be paid for with existing surplus funds and future growth — as Max detailed,
there are reasons
to be very skeptical of that. After the jump, my roundup on the presser.
In addition to the tax cuts, Hutchinson made specific promises about areas in which the state is legally constrained — balancing the budget and "maintaining our commitment to fund education" (he said cuts to education funding were off the table). But he also repeatedly stated that "no reduction in spending is necessary" to achieve the tax cuts. "No reduction in education spending, no reduction in spending in our prisons, no reduction in spending on our social service programs," he said.
The tricky part, of course, is that Hutchinson is banking on continued surpluses. I asked what he would prioritize if that didn't come to fruition. Where would he look to trim back spending to pay for these tax cuts if the surplus shrinks? "You wouldn’t," he said. "A governor always has to adjust. My priority is to maintain the commitment to fund education, to maintain all of our other responsibilities. That would be the same argument that Gov. Beebe reduced the sales tax on groceries not knowing what the future holds. But you have to make that commitment and adjust accordingly." Okay, I asked, if he adjusted accordingly, would that mean eliminating the tax cut or cutting back on spending? Hutchinson replied, "Maintaining the commitment to education would be one of the promises and commitments we have, so that would not be impacted." That's as much as he was willing to say.
Hutchinson was asked about programs whose costs increase over time. Since he kept harping on education, I asked specifically about the Arkansas Better Chance
program, the pre-k program which unlike k-12 is not covered by adequacy requirements and has been flat funded since 2008. Many in early childhood education believe that the program will have to start cutting slots for pre-k if flat funding is continued (and the state continues to offer almost no programming for infants and toddlers, the age that evidence suggests offers even higher returns on the investment).
"The $100 million application of part of the surplus for reduction in tax rates does not foreclose the opportunity to increase funding in any other program in the state of Arkansas, including pre-k," Hutchinson said.
Winning argument! Tax cuts for the middle class without any impact on spending!
Seriously, though, purely as a political argument, Hutchinson's tax plan is cleverly crafted, focusing on a populist pitch for immediate progressive tax cuts. Flipping the script a bit as the Republican establishment candidate. You could almost shut your eyes and hear a Keynesian: "That's $300 in tax savings for someone making $50,000 a year. This is money that will be spent by the taxpayers, it will help grow our economy, and it will create jobs."
Hutchinson didn't specifically mention Mike Ross's proposal to eliminate the manufacturing sales tax, but it's clear that he aims to claim the populist turf if he can. "In my judgement, this is the most important priority for job creation and helping the greatest number of Arkansans," he said. "There are lots of other legitimate needs out there and proposals out there. I think they miss the boat. If you have a targeted tax cut for industry, that neglects the retail sector, that neglects tourism, that neglects the mom and pop store, that neglects agriculture. This is the only proposal that helps every sector of our economy and that should be our highest priority."
And what if you make more than $75,000? Or $7,500,000? You might be feeling a a bit neglected, since Arkansas Republicans used to use the "job creators" label
to hint at tax cuts for the very wealthy. Not to worry. "As the economy grows and surpluses increase, then we can gradually reduce the rates on higher income individuals," Hutchinson said. "But let’s start with the hardworking Arkansans who are middle class that need the relief the most...It is not the end objective but it is the start of this process to lower the 7 percent state income tax across the board for every Arkansan."
The elephant in the room for Hutchinson throughout the nascent campaign has been the "private option," the bipartisan plan for achieving Medicaid expansion through the use of private health insurance that was passed by super-majority last session. It's of particular relevance to Hutchinson's tax cuts as the "private option" will give the state a lot more wiggle room in its budget: because of federal money coming in, the policy is projected to save the state money on net, to the tune of almost $700 million over 10 years
. If the legislature refuses to appropriate money in the fiscal session (in practice, this would be a refusal to accept money from the feds, who foot the entire bill in the first three years), the state budget might suddenly be looking at shortfalls, throwing into doubt the tax cuts passed last session, not to mention Hutchinson's latest proposal. So what's Hutchinson's position on the "private option" and appropriating funding for the policy in February? He's never given a particularly straightforward answer and that didn't change today.
Cost figures are going to continue to come in. There’s a lot of unknowns that are going to happen between now and Februrary. This is separate. What we’re proposing here certainly should not be dependent upon that debate. But there is some impact on that... . I have been very consistent from day one that first of all I would have preferred to have a special session to address the Medicaid expansion issue, the "private option" issue. That didn’t happen, they chose a different path. They approved it and it’s the law of Arkansas right now. There may be a debate on the funding of that. Again, there’s going to be a lot of factors that will be in play. What’s Congress going to do? What’s President Obama going to do? How is the development of the overall Obamacare rollout? ...That impacts every decision that the legislature will make in February so I believe it’s certainly premature to say exactly what we should do.
I followed up: "As of today,
you don’t have a position one way or the other on whether the legislature should re-authorize the appropriation?"
"I have a very clear position, which I just stated," Hutchinson replied.
I will leave it to readers to divine the clear position. But Hutchinson is playing this politically smart. He'll continue to bob and weave. Safer to talk about process than take a stance on policy (who cares, at this point, whether there was a special session?). Some among the Republican base are mad as hell about the "private option" and Hutchinson would like to avoid pissing them off for as long as possible. But he also has a relatively easy go of it in the primary and it's hard to imagine Tea Partiers abandoning him for Ross no matter what Hutchinson says on the "private option." Meanwhile, plenty of established interests in the state have a vested interest in the policy, which got the support of a bipartisan supermajority in the legislature and the popular governor Hutchinson hopes to replace. The policy is vital to create enough room in the budget for tax cuts going forward, not to mention the fact that the number of people who have applied to the "private option" and would stand to lose coverage if it was de-funded is more than 70,000 and growing
In short, Hutchinson has every reason to have it both ways and avoid taking a position for as long as he can. That much is indeed very clear.