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The Associated Press March 18, 2011, 4:43PM ET

Ark. House panel OKs 3 tax cuts part of $35M deal

A House committee voted Friday to cut taxes on groceries, used-car sales and manufacturers' energy bills in Arkansas, part of a deal lawmakers struck with Democratic Gov. Mike Beebe that will cut the state's revenues by $35 million in the coming year.

After weeks of negotiation, the House Revenue and Taxation Committee took less than 10 minutes to approve the three cuts and send them to the House for a vote early next week. The measures are among six tax cuts proposals that had stalled in the Legislature. A day earlier, House and Senate leaders struck an agreement to clear their way toward final votes.

"Sometimes the frustration with the process can be difficult, but when you get to the end result it's benefitting all of our citizens who sent us up here to do business," House Speaker Robert Moore told the panel shortly before its vote.

The centerpiece of the tax cuts is Beebe's proposal to cut the state's sales tax on groceries by a half-cent, which state officials said will cost the state $20.8 million. Beebe had campaigned on a promise to keep cutting the sales tax on groceries but said it was the only tax cut the state could afford in his $4.6 billion budget proposal. He has since agreed to sign all six measures.

Rep. Tracy Steele, who sponsored the grocery tax cut in the House, said he planned to bring the legislation to a vote Monday afternoon.

Citing the rising prices of food and gas, Steele said he believed the proposal to cut the state sales tax on groceries from 2 percent to 1.5 percent would help many families. Arkansas' grocery tax has been gradually reduced from 6 percent since Beebe took office in 2007.

"It couldn't come at a more opportune time," Steele, D-North Little Rock, told the panel.

The panel also approved raising the sales tax exemption on used cars from $2,500 to $4,000, slightly less than the $5,000 exemption originally proposed.

The panel also approved legislation to cut the sales tax manufacturers pay on natural gas and electricity from 3.25 percent to 2.75 percent and give a phased-in tax break for high-efficiency power generators. The measure was amended to delay the implementation of part of the tax break for six months.

Both changes were agreed to in order to reduce the impact on the state's revenues.

"This is so much better than the last time I was here," Sen. Gilbert Baker, the sponsor of the used car tax proposal, told the panel after it was approved. The vote came nearly two weeks after Baker left the meeting in frustration when the panel voted to table his proposal over disagreements on the tax cuts.

A Senate panel is expected on Monday to take up the other half of the tax relief agreement when it considers bills to create an annual back-to-school sales tax holiday, cut taxes for single parents and expand a tourism-related tax exemption.

Beebe has said he's still worried about the cost of the tax cuts, but he can find room in the budget for them. Baker and other Republicans have said some of the cuts may be paid for by limiting a 1.86 percent cost-of-living increase proposed for all state employees and by paring back other spending increases Beebe proposed.

Rep. Davy Carter, chairman of House panel, said he believed the state would be able to afford the loss in revenue in the coming years.

"I think as a whole, this is not something that's going to put the state in any fiscal danger, by any means," said Carter, R-Cabot.

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