Arkansas Taxes Said to Hurt the Poor the Most
By Conduit for Action
A recent study of taxes says Arkansas taxes are among the most regressive in the nation. By “regressive” the study claims Arkansas’ tax structure hits low and middle-income people hardest.
The study by the Institute on Taxation and Economic Policy, a Washington, D.C. think tank, examined income taxes, sales taxes, excise taxes, and property taxes in each state and the District of Columbia. The study says Arkansas taxes fall heaviest on low and middle-income people as compared to the taxes on the highest earners. The study ranked Arkansas taxes as the ninth most regressive in the nation.
While Conduit for Action thinks it is important to consider the tax burden on those least able to afford it, we want to make it clear we consider the Institute’s study to be junk statistics and not helpful to state decision makers.
Here are some basics to help you understand the Institute’s findings.
- Sales taxes and excise taxes are always considered to be regressive. The tax rate for these taxes is the same for every person making a purchase, but low-income earners have less disposable income than high-income earners and therefore the burden of paying the tax is higher for the low-income earners.
- The Institute’s study considers an income tax with a graduated rate to be a less regressive tax and ranks states as less regressive if the income tax rate is much higher for high income earners. The study says: “A progressive, graduated rate income tax makes overall tax systems less regressive or more progressive.”[i]
- If a state does not have an income tax on personal income, the Institute considers the state to be among the most regressive. Remember, to not be considered regressive the state has to tax high-income earners much more, so completely eliminating the income tax on personal income is considered to be a bad thing under their study.
- The Institute’s study does not take into consideration the relative tax burden on residents of the various states. That means a state could tax its residents less than a neighboring state, but still be considered by the Institute to have a more regressive tax system. Regressive has nothing to do with how much taxes you must pay. It only has to do with whether the tax system tries to make taxes hurt high-income earners as much as for low and middle-income earners.
EXAMPLES
California is a high tax state and people and businesses are fleeing California in droves for states like Florida and Texas. Despite California’s high taxes, the study considers California to have one of the least regressive tax systems in the nation.
People and businesses are moving to states like Florida and Texas. Despite being among the most attractive places to move, in part due to lower taxes, the study considers Florida and Texas to be among the states with the most regressive taxes. Why? It is because Florida and Texas do not tax personal income and the Institute favors states with income taxes that tax high-income earners at a much greater rate.
Over the past several years, Arkansas has reduced income taxes for low, middle, and high-income earners. In doing so, the tax rates have compressed to a smaller difference in the tax brackets. Despite Arkansas lowering the burden of income taxes, the Institute considers this change to be a bad move because the study favors imposing a much higher income tax rate on high-income earners. Despite lowering the income tax burden for all Arkansans, the Institute changed Arkansas’ ranking from the 20th most regressive in 2018 to the 9th most regressive in 2024.
KEEPING TAXES HIGH
Basically, we see the Institute’s study as a justification for the radical left’s call to “tax the rich.” We have seen the crippling consequences of their strategy.
Along the same lines, there was an effort in Arkansas to get taxpayers to fund a redistribution of wealth. Conduit for Action fought against the redistribution of wealth which was called an “earned income tax credit.” There was nothing “earned” about it. It would have given away your taxes to people who do not even owe taxes. Fortunately, the Arkansas General Assembly rejected the redistribution of wealth not just once but twice.
BETTER POLICIES CAN BE ADOPTED
Conduit for Action doesn’t find the Institute’s study to be helpful, but that does not mean we are satisfied with Arkansas’ tax burden on taxpayers, especially on low-income earners.
Over a decade ago, the state began reducing its sales tax on groceries. That work is not yet done. There is still a state 1/8th% sales tax that applies to groceries. Although it is a small percentage the state needs to exempt groceries from the 1/8th% tax. Also, the state has authorized cities and counties to impose sales taxes and when adopted the local tax automatically includes groceries. When you combine city and county sales taxes some localities may be imposing more tax on groceries than the state did before reducing its rate. At a minimum state law should be changed so new local sales taxes do not apply to groceries. Even better would be to allow citizens to exempt groceries from existing local sales taxes, if not pledged for a bond.
A recent sales tax relief law was in the form of exempting a higher dollar amount on used cars from sales tax. That sales tax exemption needs to be expanded.
The tax burden in Arkansas is too high and Arkansas taxpayers pay too much for state government. Obviously, we support the complete elimination of the income tax on personal income, even if a Washington D.C. think tank sees it as more regressive. Two states bordering Arkansas already have eliminated their income tax and we need follow their example to be competitive.
We agree with the principle of the Republican Party of Arkansas which says we need “Lower taxes to produce economic growth.”
