- Associated Press - Monday, January 30, 2017

LITTLE ROCK, Ark. (AP) - The Arkansas House on Monday approved a tax break for retired military veterans, but the proposal is drawing objections from conservatives over a plan to raise taxes on soda, candy and digital downloads to help pay for it.

The proposal, which cleared the House on a 75-14 vote, would exempt military retirement benefits for about 29,000 veterans in the state. The measure now heads to the Senate, where a panel endorsed an identical version of the bill. Supporters of the measure, including Republican Gov. Asa Hutchinson, are touting it as a way to draw more retirees to Arkansas.

“This moves us a step closer to having a tax environment in Arkansas that will be an incentive for military retirees to locate in Arkansas,” Hutchinson said in a statement after the vote.

But the proposal faces resistance from some GOP lawmakers and anti-tax advocates over increases proposed elsewhere to help pay for the $13 million exemption. The legislation would also levy sales taxes on e-books, digital music and ringtones. It also calls for levying the state’s full 6.5 percent sales tax - rather than the lowered 1.5 percent rate for groceries - on soda and candy and making unemployment benefits subject to income taxes.

The proposal also calls for reducing the tax that restaurants and retailers pay on syrup for soft drinks.

Conservative activist Grover Norquist, head of the Americans for Tax Reform, urged lawmakers in a letter sent Monday to oppose the tax hikes contained within the legislation.

“If we could separate out the taxes and vote for a clean bill to give veterans a break on their retirement, who wouldn’t vote for that?” said Republican Rep. Charlotte Douglas, who voted present, which has the same effect as voting against a bill. “But when I talk to my veterans, they all say ‘do not vote for this bill.’ They say it’s not right to put that on the backs of other Arkansans for us to pay for it.”

The digital downloads proposal was made after lawmakers scrapped an initial plan to raise taxes on manufactured housing, a proposal that opponents said would unfairly harm rural and poor taxpayers.

Supporters of the measure said the increases were needed to avoid cuts to state needs to pay for the exemption.

“No one likes cuts to their schools or to their prisons or other programs, so we’ve been careful to find other ways to show how this bill will pay for itself from the very beginning,” Republican Rep. Charlene Fite said.

A member of the Senate panel also expressed reservations about the exemption being paid for with additional hikes.

“I think our state’s budget, out of $5.4 billion, we could have found the ability to simply give this tax cut to the military veterans and not raise any revenue to do so,” Republican Sen. Jason Rapert said

The measure advanced shortly after lawmakers gave final approval to Hutchinson’s plan to cut income taxes for more than 600,000 Arkansans making less than $21,000 a year. The $50 million cut will take effect in 2019 under the legislation, which also creates a legislative task force that will recommend deeper tax reductions before the 2019 session. Hutchinson plans to sign the measure into law on Wednesday, his office said.

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Follow Andrew DeMillo on Twitter at www.twitter.com/ademillo

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