Governor Mike Beebe says the state can only afford one small tax cut. Senator Gilbert Baker disagrees and appears ready to challenge the governor on the issue during this session. Let's take a brief look at some of the issues in play as the tax cut battle draws nearer.

Governor Beebe: Cut the Grocery Tax and Nothing Else

Beebe has stated numerous times that the only affordable tax cut is a half-cent reduction of the grocery tax (which has already been cut twice during his time in office: from six cents to three cents in 2007, and from three cents to two cents in 2009). The cut will cost the state an estimated $20.8 million, with $15 million coming from general revenue.

Beebe's cut is almost guaranteed to pass -- Progressive Arkansas has interviewed nearly two dozen legislators in the past several months and seen interviews with many others, and none have voiced any opposition to the grocery tax cut, when asked about it.

The governor is offering lawmakers a simple challenge: If they want to cut any taxes beyond grocery, they need to show exactly where they're going to cut the budget to make up for it. Will higher education lose the revenue? Prisons? Medicaid? Be honest and tell us, Beebe says.

Baker in a Key Position to Oppose the Governor

The most influential Republican in the General Assembly, when it comes to tax cuts, is undoubtedly Senator Gilbert Baker (R-Conway), the Senate co-chair of the Joint Budget Committee. Baker has a rather different view on tax cuts than does Beebe, as a recent Talk Business story revealed.

"I think they [tax cut bills] are all going to come out of the House and rest in the Senate Revenue and Tax Committee until the last two weeks," Baker said in a Friday afternoon interview. "I'm just telling you straight up, that's my opinion."

The final weeks of a legislative session are when lawmakers put the final piece of the state's balanced budget - the Revenue Stabilization Act - into place.

"When it gets into the session and you're dealing with Revenue Stabilization and these tax cuts, they'll go hand in hand," says Baker, who knows he'll play a critical role in brokering any deal.

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"I don't believe that everybody that proposes a tax cut is absolutely responsible to find where that revenue is.  Now, we as a legislature have that responsibility, and I as budget chair will have a great deal of that responsibility," said Baker. "I think the Governor has responsibility as [chief] executive to work through the appropriations of revenue that is passed in the legislature. So I probably disagree with the Governor a little bit on that."

If Baker wants a showdown with Beebe, it's clear that he can get it. He says that tax cuts can be held until the end of the session and then reconciled with the budget. He rejects Beebe's challenge on showing where the revenue for a tax cut will come from -- essentially, Baker thinks the legislature can pass tax cuts first and find space for them later.

We have talked to several of Baker's colleagues in the Senate about taxes and particularly tax cuts. Here are some excerpts from our interviews with them; you can also click on their names (except in the case of Paul Bookout, whose interview has not yet been published) to read our full article on them.

Senate President Pro Tempore Paul Bookout (D-Jonesboro)

I’ve been talking with Senator Baker. I certainly respect Governor Beebe and his position on the food tax reduction; it’s something I have fully supported in the past. I can fully understand him putting forth on that issue. I also want to take a look at what we might be able to do on used cars -- if there might be a possibility, some kind of a formula, where we could look at phasing it out over a number of years. ... You could look at phasing out used car tax based on tax growth from the previous year, so you could do it in a way that the state revenues kind of offset the reduction, similar to the food tax.

Senator Johnny Key (R-Mountain Home)

For many years Key has worked to increase the income tax exemption for retirees. Currently the first $6,000 in retirement benefits is not taxed; Key has introduced legislation to raise that number to $10,000, and would like to see it eventually settle at $12,000. He says the exemption desperately needs to be raised if Arkansas is to successfully compete with other states for retirees. Indeed, to take stock of a few Southern neighbors, Mississippi does not tax retirement benefits at all; Tennessee exempts total incomes of less than $16,200 (single filer) or $27,000 (joint filer) for people over age 65; Texas has no income tax at all.

Senate Minority Leader Ruth Whitaker (R-Cedarville)

Whitaker ... sounds easygoing about the grocery tax. “I get the feeling that some legislators were considering lowering it more than that,” she says. “But we have to have a balanced budget, and we don’t want to raise taxes.” But does she think the legislature will approve any other tax cuts? “Probably we would just get the governor’s bill passed,” she says.

Senate Revenue & Taxation Chair Larry Teague (D-Nashville)

This year Teague will hold one of the most prominent chairs in the legislature -- that of the Senate Revenue and Taxation Committee. He chaired the House version of that committee in 2001-02. “It’s a hard committee,” he says. “Mostly your job is to say no.” That’s true both of tax hikes and tax cuts, he adds. In this session, there will be far more tax cuts proposed than tax increases, but Teague says he knows many of them won’t make it past his committee.

“I am the only returning member of the committee,” he notes. But he says he’s glad that several of the other members, including vice-chair Michael Lamoureux, Jake Files, and Linda Chesterfield, have previously served on the House Revenue and Taxation Committee. “There’s work to be done,” Teague says, “and we’re going to gather the committee before the session starts and talks about interests and that type of thing. But I’m encouraged, and I think we’ll be a good team.”

Senate Revenue & Taxation Member Jake Files (R-Fort Smith)

One key area where the state can provide relief, Files says, is by eliminating the sales tax for natural gas and electricity. His predecessor, Senator Denny Altes (R-Fort Smith) unsuccessfully tried to do it in 2009, with the support of the Arkansas Chamber of Commerce. Files says it’s an idea whose time has come.  “It allows us to be competitive with other places in terms of getting industry to move here,” he says, “and also to be competitive when you already have a plant. When you work in Georgia Pacific, for example, they’re looking at the most efficient plants, and that’s how they decide where to move their jobs.”

Files’ Senate district, 13, consists solely of Fort Smith, the industrial hub of the state. He says he has been talking to local businessmen and managers who say the tax-free energy plan would help them tremendously. “I was talking to the plant manager at Owens Corning,” he says, “and he told me, ‘That plan would save us over $100,000 in a year. You can look at it however you want to, but it makes us more competitive internally and externally.’”