Governor Sarah Sanders announced her plan to reduce the top rate of the individual income tax from 4.9% to 4.7%. The bill was filed by Senator Jonathan Dismang as SB549. If passed, the tax cut will apply to the individual income tax you pay beginning in 2024.
The reduction in the rate is only 0.2% but every reduction is significant and needed by Arkansas taxpayers.
How will the bill’s new top individual rate of 4.7% compare to the rates in the six surrounding states? Poorly.
- SB549 will make Arkansas’ rate temporarily lower than three of the surrounding states but two of those states (Missouri and Mississippi) will be implementing further tax cuts and Oklahoma appears to be on the verge of adopting a tax cut.
- In 2024, under SB549 Arkansas will be tied with Mississippi as having a 4.7% rate which will be the highest rate of the surrounding states. (That assumes Oklahoma adopts its tax cut and assumes Missouri’s cut is triggered.)
- In 2025, Mississippi will implement another cut to 4.4%. Then Arkansas will have a higher rate than the surrounding states. (Again, that assumes the Oklahoma cut passes and the Missouri cut is triggered.)
So, it appears that even with the SB549 cut, Arkansas’ rate will soon be the highest rate in the seven state area.
State Current Rate Future rate
Arkansas 4.90% (4.7% assuming SB549 passes)
Missouri 4.95% (4.5% if triggers in law are met)[i]
Oklahoma 4.75% (4.5% in 2024 assuming Oklahoma bill HB2285 passes)
Mississippi 5.00% 4.7% in 2024, 4.4% in 2025, and 4% in 2026[ii]
Louisiana 4.25% 4.25%
Tennessee none none
Texas none[iii] none
The bill to reduce the Oklahoma rate to 4.5% overwhelmingly passed the Oklahoma House by 77 “Yes” and 19 “No” votes. The bill is now in the Oklahoma Senate. It should be noted that the Oklahoma bill creates a flat rate which would make its tax burden slightly higher than Arkansas’ SB549 because Arkansas’ rate is graduated.
The rate reduction proposed by SB549 is needed. Without it, Arkansas will fall even farther behind the surrounding states.
Obviously, even more tax relief is needed soon if Arkansas is to be competitive with the surrounding states. To make substantial cuts, Arkansas needs to make changes in the way it handles the state budget. First, make tax relief a priority at the beginning of legislative sessions, instead of waiting until after everyone has fought for a bigger share of the government pie. Second, the state must quit throwing more money at government programs simply because they exist. Government programs need to be periodically reviewed to determine whether the programs are efficient, effective and still a priority. If not, eliminate them and save taxpayer money.
Cutting programs and holding down spending is important to address other taxes as well. Remember, Arkansas’ combined state and local sales taxes are the THIRD HIGHEST in the nation.[iv]
Let your Senator and Representative know of your support for SB549 and even more tax relief is essential.
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[i] https://taxfoundation.org/publications/state-individual-income-tax-rates-and-brackets/
[ii] https://taxfoundation.org/publications/state-individual-income-tax-rates-and-brackets/
[iii] https://taxfoundation.org/publications/state-individual-income-tax-rates-and-brackets/
[iv] https://taxfoundation.org/2023-sales-taxes/
