Natural State News

An economic analyst recently explored the potential benefits of lowering taxes in Arkansas. 

Arkansas Democrat-Gazette reported that state leaders are currently weighing proposals to lower the state's income tax rate from 5.9% to 5.5% by 2023. After observing how the cut impacts the government's revenue and budget, the tax could be further lowered to 4.9%.

They are also considering proposal by Sen. Jonathan Dismang (R-Beebe) which would whittle down the number of tax brackets from three to two. This would be accomplished by merging the lower and middle tables into one, with the cutoff between the higher and lower tax bracket being $82,000.

Jeremy Horpedahl, associate professor of economics at University of Central Arkansas and research scholar at the Arkansas Center for Research in Economics, weighed in on the chances that leaders actually lower the tax rate.

"Right now the most likely outcome is some modest reduction of the top income tax rate by either a half or one percentage point, and some income tax cuts for middle-income taxpayers as well," Horpedahl told Natural State News. "There are several proposed plans to lower taxes, but they all contain these basic elements, even though they differ in details. The top income tax rates for individuals will likely be lowered to 4.9% or 5.5% from the current 5.9% over a few years."

Horpedalh and Joseph Johns argued in a recent op-ed that Arkansas should lower the tax burden that it puts on its residents. They reference the lower rates of their neighboring states that makes Arkansas less competitive, the budget surplus being run by the state government, and that high-income tax can have negative effects on economic growth.

"I would not say the effect of our current tax rates are detrimental, but keeping Arkansas's income taxes at the same level while other states are lowering theirs will make us less competitive," Horpedahl told Natural State News. "Two of Arkansas's neighbors have no income tax (Texas and Tennessee). A third has looked seriously at eliminating the income tax too (Mississippi). Our other three neighbors have either recently cut income taxes or have definite plans to do so in the near future. Standing still means falling behind in terms of tax policy."

Arkansas Times reported that a presentation from Moody's Analytics to the joint meeting of the Arkansas House and Senate Revenue and Taxation Committees showed evidence that the pandemic reduced state revenue over what was expected and another estimated that the cost of lowering the state income tax from 5.9% to 5.5% for the top bracket and some reductions for lower-income levels would cost the state $2.6 billion over the next 10 years.

Some legislators argued that the state's reserve fund would provide relief in the event of tax cuts, but Sen. Jimmy Hickey (R-Texarkana) responded that the fund was not created for that purpose. Other senators noted the benefits of having a low-income tax in the state as a method to attract individuals and businesses while acquiring tax dollars by other means.

According to Natural State News, the state's speedy recovery from the restrictions of the pandemic is the main reason Arkansas has been afforded the opportunity to not only provide some income tax relief to its residents but to also attract more individuals and businesses with this measure.

"While death and taxes have been on all of our minds a lot lately, lowering the burden of taxes on Arkansans will help us move forward out of these challenging times," Horpedahl said in his op-ed.