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Arkansas PoliticsReadTaxes/Government Spending

Where’s the beef? Tax relief?

Arkansas has high taxes. Arkansas’ combined state and local sales taxes are the THIRD HIGHEST in the nation.[i] Arkansas’ top individual income tax rate is currently WORSE than all but two of the six surrounding states (Mississippi and Missouri); but if Arkansas doesn’t cut its rate further the Arkansas rate will once again be higher than all the surrounding states.

State            Top Rate
Mississippi  5.00%     (4.7% in 2024, 4.4% in 2025, and 4% in 2026)
Missouri      4.95%     (has triggers to eventually reduce the top rate to 4.5%)
Arkansas     4.90%
Oklahoma   4.75%
Louisiana     4.25%
Tennessee   none
Texas          none[ii]

What is happening in the Arkansas Legislature concerning tax relief? The current session of the Arkansas legislature began January 9th, and we are now well into March.  But, there has been no tax relief.

The fact there is no major tax relief is not an accident. Early in the legislative session, some Arkansas legislators said the Revenue and Taxation Committees of the Arkansas Senate and House should hold all tax relief bills and not consider tax relief until it is clear what new spending obligations will be passed by the General Assembly. They claimed this is “the conservative thing to do” since it ensures the state will have adequate funds for spending.

Their plan is anything but conservative. The tactic really means having plenty of taxpayer money to spend to grease the skids of the Session. You vote for my increased spending, and I’ll vote for yours! Get ready for even more spending!

Many fiscal conservatives in the state, including Conduit for Commerce, consider a tax cut as the only way to cut spending.  Remember the Revenue Stabilization Act may ensure that no more is spent than is taken in, but it also has the reverse effect —all that is taken in will be spent![iii]

Therefore, the only way in Arkansas to reduce government, reduce wasteful programs, and reduce the natural grab for more power (thus rending the citizens with less freedom), is to reduce tax revenues.  To focus on spending only rearranges the chairs on the Titanic.

But spending first and then considering tax cuts means they don’t have to bother to look at current spending and cut or reallocate some spending to higher priorities. Then, when they pass some tax relief they will crow loudly, even if it is just tithing back a portion of the leftovers. And, they will crow just as loud even if the tax cuts are put off until some future year.

Over the last couple of years, lots of candidates have talked about eliminating the Arkansas Individual Income Tax, since Arkansas is trying to compete against our neighbors, Tennessee and Texas, who do not tax wages. One candidate even promised to lead a petition drive to put it on the 2022 ballot, but there was no petition drive. Will the goal of eliminating the tax on wages be shelved until the 2024 campaign season?

Arkansas needs tax relief. Broad tax relief. Not special tax breaks for groups that have more clout.

Where’s the beef? Where’s the tax relief? Ask your elected officials.

 


[i] https://taxfoundation.org/2023-sales-taxes/

[ii] https://taxfoundation.org/publications/state-individual-income-tax-rates-and-brackets/

[iii] See the following article for a good summary of the RSA: https://encyclopediaofarkansas.net/entries/revenue-stabilization-act-7840/  Upon a constitutional challenge of the RSA, the following was included in the decision:

The case was appealed to the Arkansas Supreme Court, which, on May 28, 1962, unanimously upheld the decision of the Chancery Court. Arkansas Supreme Court justice Jim Johnson wrote for the court, “The Revenue Stabilization Law is a complex accounting tool designed to insure that the recipients of State funds receive monies only so long as cash is on hand. The appropriation for each agency sets a top limit on the amount that may be paid to that agency, and the Revenue Stabilization Law insures that no more is spent than is taken in and is allocated by the Legislature.”

 

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