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Taxes/Government Spending

Income Tax Cut in Special Session This Fall

Governor Asa Hutchinson plans to call a special legislative session to consider cutting the top state income tax rate from 5.9% to 5.7%.[i] But the Governor cautioned there is a lot of work to be done before the special session.

Any general tax cut such as this is good news.

Proposing a tax cut is easier because Arkansas is running a large surplus of taxpayer money despite a year of the Covid-19 pandemic and the shutdown of part of our economy. This means they don’t have to deal with the question of where to cut government bloat.

How Did The State Get A Large Surplus Of Taxpayer Money? Faulty projections and lots of tax increases.

The economic impact of the pandemic on tax collectors wasn’t as bad as politicians projected and Arkansas received federal stimulus money. Then there was the Governor’s tax increases of 2019!

Despite some tax cuts passed in 2019, the Governor pushed more 2019 tax increases than tax cuts.

The biggest cash cow among the 2019 tax increases was passage of the internet sales tax.  After a few months of experience with the internet sales tax, state officials admitted they were collecting about twice as much from Arkansas consumers than had been estimated when the Governor was trying to get the tax passed. Then the pandemic hit and the Governor’s emergency orders made people afraid to shop in person which meant even more people were shopping over the internet.

2019 also brought an increase in Arkansas taxes on gasoline and diesel, tobacco products and e-cigarettes, on cell phone bills, and on water bills That does not even count the one-half percent (0.50%) sales tax approved in 2020 for highways and roads.

Tax Cuts Earlier This Year

We would be remiss if we did not mention the legislature passed several tax cuts earlier this year. The cuts were primarily tax exemptions, much of which was limited specifically to the pandemic period and issues.  With the 2021 tax relief being primarily exemptions or credits you might not be lucky enough to benefit from any of them but that does not mean the cuts weren’t good. For example, the best of the exemptions passed was a bill by Representative John Payton concerning the sale of used cars. The law already says the first $4,000 is exempt from sales tax. Payton’s new law adds more relief by saying that from $4,000 to $10,000 a reduced sales tax rate applies. That will help many.

Wondering About The Gift Horse

The saying goes “Never look a gift horse in the mouth” yet Governor Hutchinson has thrown taxpayers so many curveballs in the past people have been speculating about his motives and what else he might include that might not be so good for us.

Before listing some of the questions and comments we have received, we want to emphasize again – we are pleased with the talk of an income tax reduction.

  • Will the Governor give sponsorship of the bill to his left wing nephew Senator Jim Hendren (once a RINO now an independent who is still voting with the Democrats)? Will the Governor let Hendren sponsor the bill to help boost Hendren’s Don Quixote dream of becoming the next governor or to help Hendren’s effort to undermine conservative Republicans through his so-called Common Ground organization? Why would Asa do that? Remember the Governor recently created a new political action committee (PAC) to fund less conservative candidates (RINO’s).
  • Will the Governor again use his frequent tactic of inserting bad or less desirable provisions in the tax legislation?
  • Is the income tax cut proposal just the sparkly object to distract us from left leaning legislation Hutchinson might want to pass in a special session with the help of Walmart?
  • Did the Governor delay income tax relief legislation to a special session for political impact? A special session after the legislature completes business on congressional redistricting will be much closer to the primary elections and therefore could have more impact on the elections.

We mention these questions and comments because Governor Hutchinson has tricked Arkansans’ so many times. But, for now, we will hope there will be no such surprises.

We at CONDUIT thank Governor Hutchinson for proposing a reduction in the top income tax rate. We ask that he include no other provisions in the bill and if he wants other tax changes to include those proposals in separate bills so each proposal can be judged on its own merits.

Let’s urge our state Senators and state Representatives to pass a bill reducing the income tax rate. A clean bill with nothing else attached.

Meanwhile, we hope the next Governor will commit to a plan to end the state income tax, like our neighbors Texas and Tennessee. We note gubernatorial candidates Sarah Sanders and Leslie Rutledge have already committed to plans to do that.[ii]

[i] Panel advances $5.84B budget plan, Arkansas Democrat-Gazette, April 23, 2021

[ii] 2 candidates support income tax removal, Arkansas Democrat Gazette, May 18, 2021

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